How's your FICO Score?

Because we live in an automated, you're probably not surprised to hear that your ability to repay virtually any loan comes down to one number. The FICO score is compiled by credit reporting agencies. These agencies use the payment history of all of your loans: mortgages, car loans, credit cards, and the like.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building 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 the formulas vary from one agency to another, the differences aren't huge; all of the agencies use the following factors in calculating your credit score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers probably find their scores falling above 620.

Credit scores make a big difference in interest rates

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

Improving your 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. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

To raise your 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. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. They also provide information and tools that can help you understand how to improve your credit score.

You can get a free credit report every year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Call us: 949-544-4908.

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