FICO - Your Credit Score

Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Experian, TransUnion, and Equifax, 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 each of the models considers a range of data available in your credit report, each agency uses the following to calculate your credit score:

  • Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you hold? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers will likely find their FICO scores above 620.

Not just for qualifying

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

Can I raise my credit score?

What can you do about your FICO score? Very little in the short term. Since the score is entirely based on your lifelong credit history, it's very hard to make a significant change in the score with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)

Getting your credit score

In order to raise your score, you've got to obtain the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three reporting agencies, along with your credit report. Also available are information and online tools that can help you improve your credit score.

You can get a free credit report once per year from the three major 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 information, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about your FICO score? Give us a call at (602) 332-9544.

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