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 boils down to just one number. The FICO score is compiled by credit reporting agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and others.

The three credit reporting 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, each agency uses the following to determine a credit score:

  • 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 credit card accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?

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

Credit scores make a difference in interest rates

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I raise my FICO score?

What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is calculated from your lifetime credit history, so you can't turn it around right away. You should, of course, appeal for the credit agency to remove any incorrect reporting on your credit report; this is really the only way to quickly improve your credit score.

Getting your credit score

Before you can improve your credit score, you must know your score and make sure that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, offers 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. Also available are helpful information and online tools that can help you improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about credit scores? Give us a call: (281) 778-0805.

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