You Credit Score: How's Your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. This score is built by credit agencies. These agencies use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO model 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 the formulas vary, each agency uses the following to determine your score:

  • Credit History - How long have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you have? How much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is entirely based on a lifetime of credit history, it is difficult to make a significant improvement in the number with quick fixes. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your FICO score, you have to obtain your score and make certain that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. They also provide helpful information and tools that can help you improve your FICO score.

You can get a federally-mandated free credit report every year from the three major credit reporting agencies by visiting 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 will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Give us a call at 952 417 8481.

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