About the FICO Credit Score

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Since we live in a computer-driven society, it should come as no surprise that your ability to repay your mortgage loan boils down to one number. Credit reporting agencies use your payment history in order to compile this score.

Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, all of the agencies use the following to determine your credit score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • Payment History - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these is assigned a value and a weight. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers have a score above 620.

Your score greatly 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. Lenders give lower interest rates to individuals with higher scores.

Improving your 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, remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

In order to improve your score, you must get 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. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide helpful information and online tools that help you improve your FICO score.

You can get a free credit report every year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it 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.

Want to know more about credit scores? Give us a call at (707) 521-3434 Ext. 23.