You Credit Score: How's Your FICO?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage comes down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, 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 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 the formulas vary from one agency to another, all of the agencies use the following to determine your credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - 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?

These factors are weighted differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most borrowers getting a mortgage in the current environment score 620 or above.

Not just for qualifying

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

What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is built on your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)

How do I find out my credit score?

To improve your score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the original FICO credit score, sells FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that can help you understand how to improve your FICO score.

You can get a free credit report once per year from all three agencies when you visit 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.

Armed with this information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about your credit score? Give us a call at (415) 456-7802.

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