FICO - Your Credit Score

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage comes down to a single number. Credit reporting agencies use your payment history to create this score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit 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, each agency uses the following to determine a credit score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have a history of late payments?
  • Credit Card Balances - How many accounts do you have, and how much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending 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 people who want to get a mortgage these days score 620 or above.

FICO makes a difference in interest rates

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 credit score

How can you raise your FICO score? Because the score is entirely based on your lifelong credit history, it's very hard to change it quickly. (Of course you can and should remove incorrect data on your credit report.)

Getting your FICO score

In order to raise your score, you've got to get the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO credit score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. They also provide helpful 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 the three major 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'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Call us: 504-866-5626.

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