How's your FICO Score?

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Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number. Credit reporting agencies use your payment history in order to create a FICO score.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following to calculate a credit score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit 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 850. Higher scores are better. Most home buyers likely find their scores between 620 and 850.

Not just for qualifying

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.

Improving your score

Is there any way to raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect reporting from your credit report; this is really the only "quick fix" for credit problems.

Getting your FICO score

Before you can improve your credit score, you must get your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the company 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 reports from all three agencies. Also available are helpful information and online tools that help you understand how to improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies when you visit 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Call us at 4808226290.

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