Scoring your Credit - How's your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. All the years you've been 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.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 these methods vary from one agency to another, the differences aren't huge; they all use the following factors in calculating a score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Late Payments - Do you have a history of late payments?
  • Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted differently depending 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. Most home buyers have a score above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

What can you do to raise your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should, of course, remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.

How do I find out my credit score?

To raise your FICO score, you've got to obtain the credit reports that are used 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 along with reports from all three credit reporting agencies. Also available are information and 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 credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Call us: 954-375-7774.