FICO Credit Scores: What Do They Mean?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. This score is compiled by credit agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO 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, each agency uses the following to build a score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
  • Inquiries on Your Credit - 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. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most borrowers getting a mortgage these days score 620 or above.

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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is built on your lifetime credit history, so you can't turn it around right away. (Of course you must appeal incorrect items on your credit report.)

How do I find out my credit score?

Before you can improve your score, you must know your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, offers FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are 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 all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

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 your credit score? Give us a call: 978-422-2311.

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