How's your FICO Score?

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

Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; each agency uses the following factors to calculate a score:

  • Credit History - How many years have you had credit?
  • History of Payments - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted differently depending on the formula being used. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher scores are better. Most borrowers getting a mortgage loan in the current environment score 620 or above.

Not just for qualifying

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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, remove any incorrect data on your credit report; this is really the only "quick fix" for credit troubles.

How do I find out my credit score?

Before you can improve your credit score, you have to know your score and make certain that the reports from each agency are correct. Fair Isaac, the company that invented the original FICO credit score, sells FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that help you understand how to improve your FICO score.

You can get a federally-mandated free credit report every year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

Armed with this information, you'll 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? Give us a call: (281) 778-0805.

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