Scoring your Credit - How's your FICO?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to a single number. Credit reporting agencies use your payment history to compile your FICO score.

TransUnion, Equifax, and Experian, 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following factors in building your score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you hold? How much do you owe?
  • Credit Inquiries - 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 one number. FICO scores range from 300 to 800. Higher is always better. Most borrowers getting a mortgage loan these days score 620 or above.

Your FICO score affects your interest rate

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.

Can I improve my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifelong credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

Know your FICO

Before you can improve your FICO score, you must know your score and be sure that the reports from each agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are information and online tools that can 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 the three major 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.

Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your FICO score? Give us a call at (407) 889-4321.

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