FICO Credit Scores: What Do They Mean?

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Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan comes down to just one number. The FICO score is compiled by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car/boat loans and the like.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building your 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 each of the models considers a range of data available in your credit report, each agency uses the following to calculate a score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many accounts do you have, and how much do you owe?
  • Requests for 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 a a little from one agency to another. FICO scores range from 300 to 850. Higher scores are better. Most home buyers have a score above 620.

Not just for qualifying

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

How can you raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should remove incorrect data on your credit report.)

Getting your credit score

In order to improve your credit score, you must obtain the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO score, offers credit scores on myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide information and tools that help you understand how to improve your FICO score.

You can get a free credit report once a 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 your FICO score? Give us a call: (949) 249-3067.

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