FICO - Your Credit Score

Since we live in an automated world, it's not surprising that your ability to repay your mortgage boils down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building 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 the formulas vary from one agency to another, each agency uses the following to build your score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted slightly differently depending on which formula the agency uses. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers will likely find their FICO scores falling above 620.

Your score affects 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 probably a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my credit score?

Is there any way to raise your FICO score? So called "credit repair" companies advertise quick fixes, but the FICO score is calculated from your lifetime credit history, so you can't turn it around right away. (Of course you must remove incorrect data on your credit report.)

Know your FICO score

Before you can improve your score, you have to know your score and be sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. Also available are helpful information and online tools that help you improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies by visiting 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.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Call us at (707) 252-2700.

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