How's your FICO Score?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three major 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following factors to build your credit score:

  • Your Credit History - How long have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score above 620.

Your FICO score greatly affects your interest rate

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

Is it possible to improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO score

To improve your FICO score, you've got to have the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that offered the first FICO credit score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. They also provide information and tools that help you understand how to improve your credit score.

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

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 credit scores? Give us a call: 562 320-0510.

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