FICO Credit Scores: What Do They Mean?

Because we live in a computer-driven world, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO score 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; each agency uses the following factors in calculating a credit score:

  • Credit History - How long have you had credit?
  • History of Payments - Have you paid more than 30 days late?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these is assigned a value and a weight. 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 always better. Most home buyers have a score above 620.

Your credit score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably 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 based on your lifelong credit history, so you can't turn it around right away. You should appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

Before you can improve your credit score, you have to get your score and make certain that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered the first FICO score, offers scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. Also available are helpful information and tools that can help you improve your FICO score.

You can get a free credit report once per year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

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? Give us a call: 954.920.9799.

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