FICO Credit Scores: What Do They Mean?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

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. . 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 from one agency to another, the differences aren't huge; they all use the following factors in calculating your score:

• Your Credit History - How many years have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many accounts? How much do you owe?
• Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted differently depending on the formula being used. Each formula produces a single number which varies slightly from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.

Your score greatly affects your monthly payment

Did you know? Credit 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.

Can I raise my credit score?

What can you do to raise your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

In order to raise your credit score, you must obtain the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. 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 per year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Call us: 9043423622.