FICO Credit Scores: What Do They Mean?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to just one number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three credit reporting agencies use slightly different formulas to build a 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, all of the agencies use the following to determine a score:

• Your Credit History - How long have you had credit?
• Payment History - Do you have a history of late payments?
• Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
• Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are assigned weights based 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 is always better. Most home buyers these days have a score above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

How can you improve your FICO score? So called "credit repair" companies advertise quick fixes, but the score is based on your lifelong credit history, so you can't turn it around right away. (Of course you can and should appeal incorrect items on your credit report.)

Know your FICO

Before you can improve your FICO score, you must know your score and be sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. 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 agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick 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 right mortgage for you.

Curious about credit scores? Call us at 9254610500.