FICO - Your Credit Score

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan comes down to just one number. The years of 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 agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While the formulas vary from one agency to another, the differences aren't huge; each agency uses the following in building your score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Credit Inquiries - 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 credit score. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers have a score above 620.

Credit scores make a big difference in your interest rate

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

What can you do about your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifelong credit history, so it's not possible to raise it significantly in the short term. You must remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

How do I find out my FICO score?

Before you can improve your score, you must get your score and ensure that the reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. 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 per year from all three agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

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

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