Scoring your Credit - How's your FICO?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to just one number. The FICO score is compiled by credit agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

The three credit reporting agencies use slightly different formulas to build 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 these methods vary from one agency to another, all of the agencies use the following to determine a credit score:

  • Credit History - How many years have you had credit?
  • History of Payments - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most folks who want to get a mortgage loan have a score above 620.

Not just for qualifying

Did you know? Credit 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.

Raising your credit score

What can you do to raise your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is formulated from your lifetime credit history, so you can't turn it around right away. You should, of course, remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.

How do I find out my credit score?

In order to improve your credit score, you've got to obtain the 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 quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and online tools that help you improve your FICO score.

You can get a free credit report every 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 very inexpensive.

Armed with this information, 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: (941) 366-5800.

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