You Credit Score: How's Your FICO?

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Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "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 score:

  • Credit History - Have you had credit for years, or for a short time?
  • Late Payments - Do you have a history of late payments?
  • Credit Card Balances - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. FICO scores range from 300 to 850. Higher scores are better. Most home buyers have a score above 620.

FICO makes a huge difference in interest rates

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 raise my credit score?

What can you do to raise your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the FICO score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you must appeal incorrect items on your credit report.)

How do I find out my FICO score?

To improve your FICO score, you've got to have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that offered the first FICO credit score, sells credit scores on myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. They also provide information and tools that help you improve your FICO score.

You can get a federally-mandated free credit report every year from the three major credit reporting 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 obtain the right mortgage for you.

Want to know more about credit scores? Call us at (619) 249-3220.

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