You Credit Score- How's Your FICO?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage comes down to just one number. Credit reporting agencies use your history of paying all types of loans in order to create your FICO score.

Each of the three credit agencies has its own formula for building your 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following to calculate your credit score:

  • Credit History - How long have you had credit?
  • Payment History - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. Credit 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? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

What can you do to raise your FICO score? Unfortunately, not much. Because the score is based on your lifelong credit history, it is difficult to change it quickly. (Of course you can and should have incorrect items removed from your credit report.)

Getting your credit score

To improve your FICO score, you must have the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO score, sells FICO scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from all three credit reporting agencies when you visit 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.

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

Curious about credit scores? Give us a call at (281) 778-0805.

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