Scoring your Credit - How's your FICO?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan boils down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

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

  • Credit History - How many years have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Credit Card Balances - How many accounts do you have, and how much do you owe on them?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these factors is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. FICO scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score above 620.

Your credit score affects how much you pay in interest every month

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

Can I improve my credit score?

What can you do to raise your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

To raise your score, you must get the credit reports that the agencies use 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 along with credit reports from all three reporting agencies. Also available are information and online tools that help you understand how to improve your credit score.

You can get a free credit report every year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

Armed with this information, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about your FICO score? Call us: (512) 335-7800.

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