How's your FICO Score?

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Because we live in an automated world, it's probably not that surprising that your ability to repay your mortgage loan boils down to one number. Credit reporting agencies use your history of paying all types of loans to build this score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO was developed by Fair Isaac and Company. 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 these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following factors in building a score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 850. Higher is always better. Most home buyers likely find their scores falling between 620 and 850.

Your credit score greatly affects your monthly payment

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Is it possible to raise your credit score? So called "credit repair" companies advertise quick fixes, but the score is formulated from your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should have incorrect items removed from your credit report.)

Getting your FICO score

In order to improve your FICO score, you must get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are information and tools that help you analyze what actions might have the greatest impact on your FICO score.

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

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about your credit score? Call us: 575-769-9006.