FICO Credit Scores: What Do They Mean?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to just one number. This score is created by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car loans etcetera.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. Fair Isaac and Cooriginally developed this score. . 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 these methods vary from one agency to another, all of the agencies use the following to build your credit score:

  • Credit History - Have you had credit for many years, or for a short time?
  • Payment History - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers who want to get a mortgage score 620 or above.

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

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? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit troubles.

Know your FICO

In order to raise your FICO 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. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. Also available are helpful information and online tools that help you understand how to improve your credit score.

You can get a free credit report once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, 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 3149139678.