Scoring your Credit - How's your FICO?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage comes down to a single number. This score is built by credit reporting agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.

The three credit 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 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 to build your score:

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

These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers have a score above 620.

Your credit score greatly affects your monthly payment

FICO scores are used for more than just determining whether or not you qualify for a mortgage. 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 about your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must appeal incorrect items on your credit report.)

How do I find out my FICO score?

In order to improve your score, you've got to get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that offered the first FICO credit score, sells credit scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that can help you understand how to improve your FICO score.

You can get a free credit report once per year from all three credit reporting agencies by visiting 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 most favorable mortgage.

Curious about your FICO score? Call us: 978-422-2311.

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