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 comes down to just one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit reporting agencies has its own formula for building your 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, the differences aren't huge; they all use the following to calculate your credit score:

  • Your Credit History - How many years have you had credit?
  • Payment History - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is better. Most borrowers getting a mortgage in the current environment score 620 or above.

Not just for qualifying

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.

Raising your credit score

How can you raise your credit score? Since the FICO score is based on a lifetime of credit history, it's very hard to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)

How do I find out my credit score?

In order to raise your credit score, you must obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and tools that can help you improve your FICO score.

You can get a free credit report once per year from the three major agencies at 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.

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

Want to know more about your FICO score? Call us at (832) 730-2000.

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