FICO - Your Credit Score

Because we live in a computer-driven society, you're probably not surprised to hear that your ability to repay your mortgage comes down to a single number. This score is compiled by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO 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 the formulas vary, each agency uses the following to determine a score:

  • Credit History - Have you had credit for years, or for just a short time?
  • History of Payments - Do you have a history of late payments?
  • Your Credit Card Balances - 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 weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get a mortgage loan these days score 620 or above.

Not just for qualifying

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 improve my FICO score?

What can you do to raise your FICO score? Unfortunately, not much. 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 have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your score, you have to know your score and ensure that the credit reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO 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 improve your credit score.

You can get a free credit report once a year from all three agencies when you visit 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your FICO score? Give us a call: (401) 583-4150.

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