About the FICO Credit Score

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan boils down to a single number. This score is built by credit agencies. They use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.

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, each agency uses the following to determine a 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 carry? How much do you owe on your accounts?
  • Inquiries on Your 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. FICO scores range from 300 to 800. Higher is always better. Most home buyers will likely find their FICO scores between 620 and 800.

Your FICO score affects your monthly payment

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Can I improve my credit score?

How can you improve your FICO score? Because the score is entirely based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. You should remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.

Know your FICO

Before you can improve your FICO score, you have to get your score and be sure that the reports from each credit reporting 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 reports from all three credit reporting agencies. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once a year from all three credit reporting agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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

Want to know more about credit scores? Give us a call at (407) 889-4321.

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