FICO - Your Credit Score

Because our world is so computer-driven, it's probably not that surprising that your ability to repay your mortgage boils down to a single number. The FICO score is created by credit agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.

The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO 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 build your score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • Payment History - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you hold? How much do you owe on your accounts?
  • Requests for Credit - 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. Credit scores range from 300 to 800. Higher is always better. Most home buyers probably find their scores between 620 and 800.

FICO makes a big difference in interest rates

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.

Raising your FICO score

What can you do about your FICO score? Unfortunately, not much. Because the FICO score is entirely based on a lifetime of credit history, it is difficult to make a significant change in the score with quick fixes. You must, of course, remove any incorrect reporting from your credit report; this is the only "quick fix" for credit problems.

Know your FICO score

To raise your credit score, you must have the 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, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide information and online tools that can help you improve your FICO score.

You can get a free credit report once a year from all three credit reporting 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.

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.

Want to know more about your FICO score? Call us at (443) 619-7900.

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