Scoring your Credit - How's your FICO?

Because our world is so computer-driven, it's probably not that surprising that your ability to repay your mortgage loan boils down to a single number. Credit reporting agencies use your history of paying all types of loans in order to build this score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors in calculating a score:

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

These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most folks getting a mortgage loan in the current environment have a score above 620.

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 probably a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my credit score?

Is there any way to raise your credit score? Because the FICO score is entirely based on your lifelong credit history, it is difficult to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)

How do I find out my FICO score?

In order to raise your credit score, you've got to have 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. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from all three credit reporting agencies when you visit 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.

Now that you have all the facts, 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: (860) 658-7100.

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