Scoring your Credit - How's your FICO?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build a credit score. The original FICO model 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, the differences aren't huge; they all use the following in building a credit score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • Late Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary a a little by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers will probably find their FICO scores above 620.

Your score greatly affects your monthly payment

Did you know? FICO 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.

Improving your score

Is it possible to improve your FICO score? Because the FICO score is based on a lifetime of credit history, it's very difficult to significantly improve the score with quick fixes. You should remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.

Know your FICO

In order to raise your score, you've got to have the credit 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, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are helpful 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 per year from the three major agencies by visiting 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Give us a call at (562) 693-5048.

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