FICO Credit Scores: What Do They Mean?

Since our society is so automated, it's probably not that surprising that your ability to repay your mortgage loan comes down to one number. Credit reporting agencies use your history of paying all types of loans in order to compile this score.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. . 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, each agency uses the following to determine your score:

  • Credit History - Have you had credit for years, or for just a short time?
  • Payment History - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted a little bit differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers likely find their credit scores above 620.

FICO makes a big 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. Lenders give lower interest rates to individuals with higher scores.

Can I improve my FICO score?

Is there any way to improve your credit score? Because the score is entirely based on your lifelong credit history, it's difficult to change it quickly. (Of course you must have incorrect items removed from your credit report.)

Getting your FICO score

Before you can improve your credit score, you have to get your score and ensure that the credit reports from each reporting 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 reports from all three agencies. They also provide information and tools that can help you improve your FICO score.

You can get a free credit report once per year from all three credit reporting agencies when you visit 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 info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about your credit score? Call us at (707) 252-2700.

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