FICO - Your Credit Score

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to just one number. This score is built by credit reporting agencies. They use the payment history from your various loans: mortgages, car loans, credit cards, and others.

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. Fair Isaac and Cooriginally developed this score. . Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While the formulas vary, the differences aren't huge; they all use the following factors in calculating a score:

  • Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get a mortgage in the current environment have a score above 620.

Credit scores make a huge difference in interest rates

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is based on a lifetime of credit history, it's difficult to make a significant improvement in the number with quick fixes. (Of course you must remove incorrect data on your credit report.)

Know your FICO

Before you can improve your credit score, you have to know your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO score, sells FICO scores on myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report every year from the three major credit reporting agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your FICO score? Call us at 972-932-9083.


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