FICO Credit Scores: What Do They Mean?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . 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, the differences aren't huge; they all use the following to calculate a score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts do you have? How much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. FICO scores range from 300 to 800. Higher is always better. Most borrowers getting a mortgage score 620 or above.

Your FICO score greatly affects your monthly payment

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

What can you do about your FICO score? Very little in the short term. Since the FICO score is entirely based on a lifetime of credit history, it's difficult to change it quickly. (Of course you can and should remove incorrect data on your credit report.)

Getting your credit score

To improve your credit score, you've got to obtain the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO score, sells scores on myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. Also available are 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 every year from all three agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about your credit score? Give us a call: 205-941-1484.

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