You Credit Score: How's Your FICO?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your history of paying all types of loans to build your FICO score.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . 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, each agency uses the following to determine a credit score:

  • Credit History - Have you had credit for years, or for just a short time?
  • Payment History - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

Did you know? FICO 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.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, remove any incorrect data on your credit report; this is really the only "quick fix" for credit problems.

Know your FICO score

Before you can improve your FICO score, you must obtain your score and be sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are information and 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 once per year from all three agencies when you visit 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.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your FICO score? Call us at 630-717-3600.


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