FICO Credit Scores: What Do They Mean?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan boils down to a single number. Credit reporting agencies use your payment history in order to build a FICO score.

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building your 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, the differences aren't huge; all of the agencies use the following to build a credit score:

  • Your 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 on your accounts?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers these days have a score above 620.

Your credit score affects your interest rate

Did you know? 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.

Improving your score

Is it possible to raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.

How do I find out my FICO score?

In order to raise your credit score, you've got to get the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide information and online tools that can 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 all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

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 your FICO score? Call us at (941) 366-5800.

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