FICO Credit Scores: What Do They Mean?

Since our society is so computer-driven, you're probably not surprised to hear that your ability to repay your mortgage loan boils down to one number. This score is compiled by credit reporting agencies. They use the payment history from your various loans: credit cards, mortgages, car loans etcetera.

TransUnion, Equifax, 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 these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following factors to build your score:

• Credit History - How long have you had credit?
• Late Payments - Do you have a history of late payments?
• Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
• Credit Inquiries - How many times have lenders pulled your credit report 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 800. Higher is better. Most home buyers these days have a score above 620.

Your credit score greatly affects your monthly payment

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Is it possible to improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only "quick fix" for credit troubles.

How do I find out my credit score?

In order to raise your credit score, you must have the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. Also available are 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 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 obtain the most favorable mortgage.

Curious about credit scores? Give us a call: (941) 366-5800.