You Credit Score- How's Your FICO?

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

The three agencies use slightly different formulas to build a credit score. The original FICO 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, all of the agencies use the following to build your credit score:

  • Your 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 accounts? How much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Typical home buyers probably find their FICO scores falling between 620 and 800.

Credit scores make a big 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 a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

How can you improve your credit score? Since the FICO score is based on a lifetime of credit history, it is difficult to change it quickly. (Of course you must remove incorrect data on your credit report.)

Know your FICO

Before you can improve your FICO score, you must obtain your score and ensure that the credit reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO score, sells FICO scores on its website: myFICO.com. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that can help you improve your credit score.

You can get a free credit report once a year from the three major agencies when you visit 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Call us at (860) 658-7100.

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