FICO Credit Scores: What Do They Mean?

Since we live in an automated, it should come as no surprise that your ability to repay your mortgage comes down to one number. Credit reporting agencies use your payment history in order to create this score.

The three 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 these methods vary, the differences aren't huge; they all use the following factors to build a score:

• Your Credit History - How long have you had credit?
• History of Payments - Do you pay your bills on time?
• Credit Card Balances - How many accounts? How much do you owe?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers will probably find their FICO scores falling above 620.

Not just for qualifying

Did you know? 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.

Raising your credit score

How can you improve your FICO score? Because the score is entirely based on your lifelong credit history, it's difficult to change it quickly. You must remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

To raise your FICO score, you must obtain the reports that are used to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide information and online tools that can help you improve your FICO score.

You can get a federally-mandated 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.

Armed with this info, 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 your credit score? Give us a call at 7202537070.