You Credit Score: How's Your FICO?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to just one number. Credit reporting agencies use your history of paying loans in order to build this score.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model 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 these methods vary, the differences aren't huge; they all use the following in calculating your score:

  • Credit History - Have you had credit for 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 credit card accounts do you hold, and how much do you owe on them?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. Each formula produces a single number which may vary a a little by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most folks who want to get a mortgage loan score 620 or above.

FICO makes a huge difference in interest rates

Did you know? 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.

Improving your score

Is it possible to improve your credit score? Because the score is based on your lifelong credit history, it's very difficult to significantly improve the score with quick fixes. (Of course you must remove incorrect data on your credit report.)

Know your FICO

In order to raise your score, you must obtain the credit reports that are used to build it, and of course, you need the score itself. 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 reports from all three credit reporting agencies. Also available are information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once a year from the three major 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.

Want to know more about credit scores? Give us a call: 706-860-5514.

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