About the FICO Credit Score

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to just one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, 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. Fair Isaac and Cooriginally developed this score. . 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, all of the agencies use the following to calculate a score:

  • Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers will probably find their FICO scores falling between 620 and 800.

Your FICO score greatly affects your monthly payment

Did you know? 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 FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is entirely based on a lifetime of credit history, it's very hard to make a significant improvement in the score with quick fixes. (Of course you must remove incorrect data on your credit report.)

How do I find out my FICO score?

In order to improve your score, you've got to have the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO score, offers credit scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from the three major credit reporting agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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 credit score? Call us at 248-644-1200.

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