About the FICO Credit Score

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan boils down to a single number. Credit reporting agencies use your payment history in order to compile this score.

Each of the three credit reporting agencies has its own formula for building your 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 build your credit score:

• Credit History - How many years have you had credit?
• Payment History - Do you have a history of late payments?
• Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
• Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher scores are better. Typical home buyers likely find their scores above 620.

Credit scores make a big difference in interest rates

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.

Can I raise my credit score?

What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is based on your lifelong credit history, so you can't turn it around right away. (Of course you can and should appeal incorrect items on your credit report.)

Know your FICO

Before you can improve your credit score, you must know your score and make certain that the reports from each agency are correct. Fair Isaac, the corporation that invented the first FICO score, offers FICO scores on myFICO.com. 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 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. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Give us a call at 610-565-3600.