FICO - Your Credit Score

Since our society is so automated, it should come as no surprise that your ability to repay your mortgage comes down to one number. Credit reporting agencies use your history of paying loans to build this score.

The three credit reporting 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 the formulas vary from one agency to another, each agency uses the following to determine a score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

FICO makes a big difference in your interest rate

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.

Can I improve my FICO score?

What can you do about your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the FICO score is based on your lifelong credit history, so you can't turn it around right away. You must, of course, appeal for the credit agency to remove any incorrect data from your credit report; this is the only "quick fix" for credit problems.

How do I find out my credit score?

Before you can improve your credit score, you must obtain your score and make certain that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. Also available are helpful information and online tools that 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 at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

Armed with this information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about credit scores? Call us: 214-718-7183.