How's your FICO Score?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan boils down to just one number. This score is built by credit agencies. They use the payment history of your various loans: credit cards, mortgages, car/boat loans and others.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO 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, all of the agencies use the following to calculate your credit score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • Payment History - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Requests for 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 results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers will probably find their scores between 620 and 800.

Your credit score greatly affects your monthly payment

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 raise my credit score?

What can you do about your FICO score? Unfortunately, not much. Since the score is entirely based on your lifelong credit history, it is difficult to change it quickly. You must, of course, remove any incorrect reporting on your credit report; this is really the only "quick fix" for credit problems.

Getting your FICO score

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

You can get a federally-mandated free credit report every 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.

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

Curious about your credit score? Call us: 818-889-7300.

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