How's your FICO Score?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. Credit reporting agencies use your history of paying loans to create a FICO score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following in calculating your credit score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • Late Payments - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher is always better. Most borrowers who want to get a mortgage in the current environment score 620 or above.

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

Did you know? 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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)

Know your FICO score

Before you can improve your credit score, you have to get your score and be sure that the reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. Also available are information and online tools that 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 when you visit 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 most favorable mortgage.

Want to know more about credit scores? Call us at (713) 528-1245.

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