About the FICO Credit Score

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan boils down to just one 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.

Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine a credit score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly from one agency to another. Credit scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

Your FICO score greatly affects your interest rate

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.

Raising your FICO score

Is there any way to raise 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 have incorrect items removed from your credit report.)

Know your FICO

Before you can improve your FICO score, you have to know your score and ensure that the reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO score, sells FICO scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and online tools that can help you improve your FICO score.

You can get a free credit report once per year from all three agencies by visiting 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 information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Call us at (610) 889-7467.

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