How's your FICO Score?

Because we live in an automated, it's probably not that surprising that your ability to repay your mortgage comes down to one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, 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 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, the differences aren't huge; each agency uses the following to calculate a credit score:

  • Credit History - How long 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?
  • Inquiries on Your 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. Each formula produces a single number which may vary slightly from one agency to another. FICO scores range from 300 to 800. Higher is better. Most people getting a mortgage loan these days score 620 or above.

FICO makes a big difference in your interest rate

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

What can you do to raise your FICO score? Unfortunately, not much. Because the FICO score is based on your lifelong credit history, it is hard to change it quickly. You should, of course, appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit problems.

Getting your FICO score

Before you can improve your credit score, you have to obtain your score and be sure that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, sells FICO scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. They also provide information and tools that can help you analyze what actions might have the greatest impact on your FICO 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 get the right mortgage for you.

Curious about your FICO score? Give us a call at (512) 291-6100.

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