About the FICO 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 history of paying all types of loans in order to build this score.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building your credit score. The original FICO was developed by Fair Isaac and Company. 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 the formulas vary from one agency to another, the differences aren't huge; all of the agencies use the following factors to build your credit score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most home buyers probably find their FICO scores between 620 and 800.

Not just for qualifying

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Is there any way to improve your credit score? Since the credit score is based on a lifetime of credit history, it's difficult to significantly improve the number with quick fixes. You must remove any incorrect reporting from your credit report; this is really the only "quick fix" for credit problems.

Know your FICO

Before you can improve your FICO score, you have to obtain your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO score, sells credit scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. They also provide information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per 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 info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about credit scores? Give us a call at (408) 626-1879.

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