Scoring your Credit - How's your FICO?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. This score is built by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car loans and others.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO score 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, all of the agencies use the following to calculate your credit score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you have any payments later than 30 days?
  • Credit Card Balances - How many accounts do you have? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these is assigned a value and a weight. 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 home buyers have a score above 620.

Your FICO score affects 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.

Can I raise my FICO score?

What can you do to improve your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)

Know your FICO score

In order to improve your credit score, you must have the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the first FICO credit score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. Also available are helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

Armed with this information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about your credit score? Call us at (832) 730-2000.

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