FICO - Your Credit Score

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage comes down to just one number. The FICO score is created by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans etcetera.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following in building your score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you have a history of late payments?
  • Credit Card Balances - How many accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly by agency. Credit scores range from 300 to 800. Higher scores are better. Most people who want to get a mortgage loan in the current environment have a score above 620.

Not just for qualifying

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

Raising your credit score

Is there any way to raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my credit score?

In order to improve your score, you must get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO credit score, offers FICO scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. They also provide information and 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 every year from the three major credit reporting agencies at 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'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about your credit score? Call us at (281) 778-0805.

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