About the FICO Credit Score

Since our society is so computer-driven, you're probably not surprised to hear that your ability to repay your mortgage loan boils down to a single number. The FICO score is built by credit reporting agencies. They use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, and the like.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, all of the agencies use the following to build a score:

  • Your Credit History - How many years have you had credit?
  • Late 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?

Each of these is assigned a value and a weight. The result is one number. FICO scores range from 300 to 800. Higher scores are better. Most folks getting a mortgage loan in the current environment have a score above 620.

FICO makes a big difference in your interest rate

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.

Improving your score

What can you do about your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO

In order to raise your credit score, you've got to get the credit reports that are used to build it. Of course, you need the score as well. 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 credit reports from all three credit reporting agencies. Also available are 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 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.

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.

Want to know more about your FICO score? Give us a call at (408) 626-1879.

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