How's your FICO Score?

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. This score is built by credit agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car loans and the like.

Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building a credit score. The original FICO was developed by Fair Isaac and Company. 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; all of the agencies use the following in calculating a score:

  • Credit History - Have you had credit for years, or for a short time?
  • Payment History - Have you paid more than 30 days late?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Your FICO score affects how much you pay in interest every month

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.

Improving your 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. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

In order to improve your credit score, you must obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from all three agencies at 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 credit scores? Call us: (808) 935-0678.

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