FICO - Your Credit Score

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, the differences aren't huge; they all use the following factors in calculating a credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers 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. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Is it possible to improve your credit score? Because the score is based on a lifetime of credit history, it is difficult to significantly improve the score with quick fixes. You should appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit troubles.

How do I find out my credit score?

Before you can improve your score, you must get your score and make certain that the reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. They also provide helpful information and online tools that help you improve your FICO score.

You can get a federally-mandated free credit report every year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

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

Curious about your credit score? Give us a call at (334) 285-8850.

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