You Credit Score- How's Your FICO?

Since we live in an automated society, 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 to create a FICO score.

The three credit reporting agencies use slightly different formulas to build 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 the formulas vary, each agency uses the following to build your credit score:

  • Your 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? 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?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.

Not just for qualifying

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

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

Getting your credit score

In order to improve your score, you must obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from all three credit reporting agencies by visiting 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 right mortgage for you.

Curious about credit scores? Give us a call: (407) 898-7559.

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