FICO - Your Credit Score

Since we live in an automated, it's probably not that surprising that your ability to repay your mortgage loan comes down to a single number. Credit reporting agencies use your history of paying loans in order to create your FICO score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine your score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - 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 assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score above 620.

Your 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. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

How can you raise your FICO score? Because the credit score is entirely based on a lifetime of credit history, it's hard to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)

Know your FICO score

Before you can improve your score, you must obtain your score and make sure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered the first FICO credit score, offers credit scores on myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide information and tools that 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 by visiting 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'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 630-717-3600.


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