FICO - Your Credit Score

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage comes down to a single number. Credit reporting agencies use your loan payment history in order to build a FICO score.

Each of the three credit agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, the differences aren't huge; they all use the following to calculate your score:

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

These factors are weighted a little bit differently depending on the formula being used. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most folks getting a mortgage in the current environment have a score above 620.

Credit scores make a huge 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 probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Is there any way to improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)

Getting your FICO score

Before you can improve your score, you must obtain your score and ensure 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 to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit 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 get the most favorable mortgage.

Curious about credit scores? Give us a call at (478) 746-2063.

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