About the FICO Credit Score

Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan boils down to a single number. Credit reporting agencies use your history of paying all types of loans to create this score.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. . 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, all of the agencies use the following to build a score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • History of Payments - Do you have a history of late payments?
  • Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these is assigned a value and a weight. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as 800. Higher is better. Most borrowers who want to get a mortgage these days score 620 or above.

Your 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. Lenders give lower interest rates to individuals with higher scores.

Can I improve my FICO score?

What can you do about your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.

Know your FICO score

Before you can improve your score, you must know your score and ensure that the reports from each agency are correct. Fair Isaac, the company that offered the first FICO credit score, sells credit scores on its website: myFICO.com. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. Also available are information and tools that can help you improve your credit score.

You can get a federally-mandated free credit report every year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.

Armed with this information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about your credit score? Give us a call at 425-508-9988.

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