Scoring your Credit - How's your FICO?

Since we live in a computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to one number. The FICO score is compiled by credit agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building a credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, the differences aren't huge; each agency uses the following factors to calculate your credit 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?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and 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 weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. FICO scores range from 300 to 800. Higher is better. Typical home buyers will probably find their scores falling above 620.

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

FICO 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

Is there any way to improve your credit score? Because the credit score is based on your lifelong credit history, it is difficult to change it quickly. (Of course you must appeal incorrect items on your credit report.)

Know your FICO score

In order to improve your score, you've got to obtain the reports that the agencies use 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 agencies, along with your credit report. Also available are 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 per year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Give us a call: (773) 774-9040 Ext 121.

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