How's your FICO Score?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage boils down to just one number. The FICO score is created by credit agencies. These agencies use the payment history of your various loans: mortgages, car loans, credit cards, and others.

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

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - 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 giving you a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is always better. Most folks who want to get a mortgage these days have a score above 620.

Not just for qualifying

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 credit score?

How can you improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO score

In order to raise your FICO score, you must get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO credit score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are information and tools that can help you understand how to improve your FICO score.

You can get a free credit report once per year from all three agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

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

Curious about your FICO score? Give us a call: 703.255-5810.

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