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 loan comes down to a single number. Credit reporting agencies use your history of paying all types of loans to compile your FICO score.

The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company. 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 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 factors in building your credit score:

  • Credit History - How long have you had credit?
  • Payment History - 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 lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most borrowers getting a mortgage these days have a score above 620.

Credit scores make a difference in your interest rate

Did you know? Credit 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.

Can I improve my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should appeal for the credit agency to remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.

How do I find out my FICO score?

To improve your FICO score, you've got to obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO score, sells credit scores on its website: 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 can help you improve your credit score.

You can get a federally-mandated free credit report once per year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

Now that you have all the facts, you will 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 978-422-2311.

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