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 boils down to just one number. The FICO score is built by credit agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car loans etcetera.

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO score was developed by Fair Isaac and Company. 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, all of the agencies use the following to calculate 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, and how often?
• Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
• Inquiries on Your 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 result is a single number: your FICO score. Credit scores range from 300 to 800. Higher is always better. Typical home buyers will likely find their scores above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is based on a lifetime of credit history, it's very hard to make a significant change in the number with quick fixes. You should remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

In order to improve your FICO score, you've got to obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO credit score, sells credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. They also provide helpful information and online tools that can help you understand how to improve your credit score.

You can get a free credit report every year from the three major credit reporting agencies at 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.

Armed with this information, you'll 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 866-300-1550.