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 boils down to just one number. Credit reporting agencies use your loan payment history in order to create your FICO score.

Experian, TransUnion, and Equifax, the three major credit agencies, each have a 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, the differences aren't huge; they all use the following to calculate your credit score:

• Credit History - Have you had credit for many years, or for just a short time?
• Payment History - Do you have a history of late payments?
• Your Credit Card Balances - How many accounts? How much do you owe?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most folks getting a mortgage loan these days score 620 or above.

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 should appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

How do I find out my FICO score?

Before you can improve your FICO score, you have to obtain your score and make sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. Also available are helpful information and online tools that can help you improve your credit score.

You can get a federally-mandated free credit report every year from the three major agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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

Curious about credit scores? Give us a call: 5613734149.