About the FICO Credit Score

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your history of paying all types of loans in order to build a FICO score.

The three agencies use slightly different formulas to build 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 these methods vary, each agency uses the following to build your score:

  • Credit History - How long have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will probably find their scores between 620 and 800.

FICO makes a big difference in your interest rate

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.

Improving your score

How can you 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 can and should have incorrect items removed from your credit report.)

Getting your FICO score

In order to raise your credit score, you must obtain the reports that the agencies use to build it, and of course, you need the score itself. 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 agencies, along with your credit report. They also provide helpful information and tools that can help you understand how to improve 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 will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Call us: (408) 626-1879.

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