About the FICO Credit Score

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan comes down to a single number. This score is created by credit agencies. They use the payment history of all of your loans: credit cards, mortgages, car/boat loans etcetera.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company. 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, each agency uses the following to build your credit score:

  • Credit History - Have you had credit for years, or for a short time?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Credit Inquiries - 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. Each formula produces a single number which varies slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is better. Most folks getting a mortgage loan in the current environment score 620 or above.

FICO makes a 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. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO score

Before you can improve your FICO score, you must get your score and make certain that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from all three agencies by visiting 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 most favorable mortgage.

Want to know more about your FICO score? Call us at 561-373-4149.


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