About the FICO Credit Score

FICO page imageSince we live in an computer-driven society, it’s not surprising that your ability to repay your mortgage comes down to just one number. The years of paying your various bills: your mortgage, car 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.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building your 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 each of the models considers a range of data available in your credit report, the differences aren’t huge; each agency uses the following in calculating your credit score:

  • Credit History – How many years have you had credit?
  • Payment History – Do you have a history of late payments?
  • Your Credit Card Balances – How many credit card accounts do you hold, and how much do you owe?
  • Requests for Credit – How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. 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 scores are better. Most folks getting a mortgage have a score above 620.

FICO makes a big difference in your interest rate
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.

Raising your credit score
Unfortunately, there isn’t a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can’t do anything different than what you can do — for free. You should remove any incorrect data on your credit report, which is the only “quick fix” for credit troubles.

How do I find out my FICO score?
In order to raise your credit score, you’ve got to obtain the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the first FICO score, sells 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. Also available are information and tools that can help you improve your credit score.

You can get a free credit report every year from the three major agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to “upgrade” your report to include a credit score is very reasonable.

Now that you have all the facts, you’ll be a more informed consumer and you’ll be better positioned to obtain the right mortgage for you.

Curious about your credit score? Give us a call at (702) 794-4300.