FICO Credit Scores: What Do They Mean?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to just one number. Credit reporting agencies use your history of paying all types of loans to build your FICO score.

Each of the three credit agencies has its own 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 from one agency to another, each agency uses the following to determine a score:

• Credit History - Have you had credit for years, or for just a short time?
• Payment History - Do you have a history of late payments?
• Credit Card Balances - How many accounts do you carry? How much do you owe?
• Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these is assigned a value and a weight. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers likely find their credit scores between 620 and 800.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I improve my credit score?

What can you do about your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is calculated from your lifetime credit history, so you can't turn it around right away. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.

Getting your FICO score

Before you can improve your score, you have to obtain your score and ensure that the reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. 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 free credit report every year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

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

Curious about your credit score? Call us at 4402349660.