Scoring your Credit - How's your FICO?

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Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage comes down to just one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build 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 the formulas vary, the differences aren't huge; all of the agencies use the following factors to build your credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • History of Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these factors 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 scores are better. Most home buyers have a score above 620.

Your credit score affects your monthly payment

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

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately 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, of course, remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

Know your FICO

Before you can improve your FICO score, you must obtain your score and make certain that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells credit scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. Also available are information and online tools that can 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 credit reporting agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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

Curious about credit scores? Call us at 415-731-3100.