FICO - Your Credit Score

Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; they all use the following factors to build your score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted slightly differently depending on which formula the agency uses. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score 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. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

What can you do to improve your FICO score? Very little in the short term. Since the score is entirely based on your lifelong credit history, it's hard to make a significant change in the score with quick fixes. You should remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.

How do I find out my credit score?

Before you can improve your score, you have to know your score and make certain that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that offered the original FICO score, offers credit scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from all three agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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.

Curious about your FICO score? Give us a call: 978-422-2311.

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