FICO Credit Scores: What Do They Mean?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage comes down to just one number. Credit reporting agencies use your payment history to compile a FICO score.

Each of the three credit agencies has its own formula for building your credit score. The original FICO score was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following factors in calculating your score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you have? How much do you owe on your accounts?
  • Requests for 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. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most people getting a mortgage loan score 620 or above.

Credit scores make a huge difference in 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.

Improving your score

How can you raise your credit score? Because the FICO score is based on a lifetime of credit history, it is difficult to significantly improve the number with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)

How do I find out my FICO score?

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 first FICO score, sells credit scores on myFICO.com. For a reasonable fee, you can quickly 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 analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report every year from all three 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 information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about your credit score? Call us at (860) 658-7100.

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