FICO - Your Credit Score

Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to just one number. The FICO score is compiled by credit reporting agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and the like.

The three agencies use slightly different formulas to build a 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, each agency uses the following to calculate your score:

  • Your Credit History - How long have you had credit?
  • History of 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 lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers will probably find their credit scores falling between 620 and 800.

Your score greatly affects how much you pay in interest every month

Did you know? 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.

Improving your score

What can you do to improve your FICO score? Very little in the short term. Because the FICO score is entirely based on a lifetime of credit history, it is difficult to significantly improve the number with quick fixes. You should remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.

Getting your credit score

In order to improve your FICO score, you must have the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO credit score, sells credit scores on its website: myFICO.com. 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 online tools that help you improve your FICO score.

You can get a free credit report every year from the three major agencies by visiting 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 information, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

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

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