You Credit Score: How's Your FICO?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage boils down to a single number. This score is built by credit reporting agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car/boat loans etcetera.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO score 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, all of the agencies use the following to calculate your credit score:

  • Your Credit History - How many years have you had credit?
  • Payment History - Have you paid more than 30 days late, and how often?
  • Your Credit Card Balances - How many accounts do you hold, 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 factors is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. FICO scores range from 300 to 800. Higher is always better. Typical home buyers will likely find their credit scores above 620.

Your score greatly affects how much you pay in interest every month

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.

Can I improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is entirely based on your lifelong credit history, it is difficult to change it quickly. (Of course you must appeal incorrect items on your credit report.)

How do I find out my credit score?

Before you can improve your FICO score, you have to obtain your score and ensure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that invented the original FICO score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. They also provide 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 every year from the three major credit reporting agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

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.

Want to know more about your FICO score? Call us at (207) 571-8034.