FICO - Your Credit Score

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage comes down to a single number. The FICO score is built by credit agencies. They use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, the differences aren't huge; each agency uses the following to build your score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • History of Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you have, 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 credit score. Credit scores range from 300 to 800. Higher is always better. Most home buyers have a score above 620.

Your credit score affects your monthly payment

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 FICO score?

What can you do about your FICO score? Unfortunately, not much. Since the FICO score is entirely based on your lifelong credit history, it's difficult to make a significant change in the score with quick fixes. You should appeal for the credit agency to remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your credit score, you have to obtain your score and make sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide helpful information and tools that help you understand how to improve your credit score.

You can get a free credit report every year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

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

Want to know more about credit scores? Give us a call at (478) 746-2063.

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