FICO Credit Scores: What Do They Mean?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. This score is created by credit agencies. They use the payment history from your various loans: mortgages, car loans, credit cards, and others.

Each of the three credit agencies has its own formula for building your 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 the formulas vary from one agency to another, each agency uses the following to build a credit score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most people who want to get a mortgage in the current environment score 620 or above.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your credit 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. (Of course you can and should appeal incorrect items on your credit report.)

Know your FICO

To raise your FICO score, you've got to have the credit reports that are used to build it, and of course, you need the score itself. 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 as well as reports from all three reporting agencies. Also available are helpful information and tools that can help you improve your FICO score.

You can get a federally-mandated free credit report once per year from the three major credit reporting 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 obtain the most favorable mortgage.

Curious about your credit score? Call us at 610-565-3600.