FICO Credit Scores: What Do They Mean?

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Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to just one number. This score is built by credit agencies. They use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

The three reporting agencies use slightly different formulas to build a 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, the differences aren't huge; they all use the following in building your credit score:

  • Credit History - How many years have you had credit?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted slightly differently depending on which formula the agency uses. The result is one number. Credit scores range from 300 to 850. Higher scores are better. Most borrowers who want to get a mortgage loan score 620 or above.

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

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.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

Getting your FICO score

To improve your FICO score, you've got to obtain the credit reports that are used to build it, and of course, you need the score itself. 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 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 a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free credit 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 FICO score? Call us: 7028359202.

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