You Credit Score- How's Your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage boils down to just one number. The FICO score is created by credit agencies. These agencies use the payment history from all of your loans: mortgages, car/motorcycle loans, credit cards, and others.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO score was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, all of the agencies use the following to calculate your score:

  • Credit History - How long have you had credit?
  • History of Payments - Have you paid more than 30 days late, and how often?
  • Your Credit Card Balances - How many accounts do you hold? How much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.

FICO makes a difference in interest rates

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

How can you raise your FICO score? Since the score is entirely based on your lifelong credit history, it's very hard to change it quickly. You should, of course, remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.

Getting your FICO score

Before you can improve your score, you have to know your score and ensure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can get your FICO score 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 once per year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Call us at (440) 234-9660.

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