About the FICO Credit Score

Because our society is so computer-driven, you're probably not surprised to hear that your ability to repay your mortgage loan comes down to one number. This score is built by credit reporting agencies. They use the payment history from your various loans: credit cards, mortgages, car/boat loans etcetera.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model 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 these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following in calculating your credit score:

  • Credit History - How many years have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher is always better. Typical home buyers probably find their credit scores falling between 620 and 800.

Your credit score greatly affects your interest rate

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.

Raising your credit score

What can you do to improve your FICO score? Unfortunately, not much. So called "credit repair" companies advertise quick fixes, but the score is built on your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you must have incorrect items removed from your credit report.)

How do I find out my credit score?

In order to raise your score, you must have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO credit score, sells credit scores on myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. They also provide helpful information and online tools that help you improve your FICO score.

You can get a free credit report once a year from the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

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

Want to know more about credit scores? Give us a call: (337) 264-9990.

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