FICO Credit Scores: What Do They Mean?

Because our world is so computer-driven, it should come as no surprise that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your loan payment history in order to compile this score.

Each of the three credit 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, the differences aren't huge; they all use the following in building your score:

• Credit History - How many years have you had credit?
• Payment History - Do you have a history of late payments?
• Credit Card Balances - How many accounts do you have, and how much do you owe?
• Inquiries on Your Credit - How many times have lenders pulled your credit report 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 varies slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers who want to get a mortgage loan these days score 620 or above.

Not just for qualifying

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is based on your lifelong credit history, so you can't turn it around right away. You must remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

Before you can improve your score, you have to get your score and be sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. Also available are information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a 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.

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 credit score? Give us a call at (808) 935-0678.