Scoring your Credit - How's your FICO?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. This score is built by credit reporting agencies. They use the payment history from all of your loans: mortgages, car/motorcycle loans, credit cards, and others.

Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. 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, the differences aren't huge; they all use the following to calculate your credit score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
  • 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. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most folks who want to get a mortgage loan in the current environment have a score above 620.

FICO makes a big difference in interest rates

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.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the FICO score is calculated from your lifelong credit history, so you can't turn it around right away. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO score

In order to improve your FICO 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, the company that offered the first FICO score, offers scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. Also available are helpful information and online tools that help you understand how to improve your FICO score.

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

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your credit score? Give us a call at 248-644-1200.

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