How's your FICO Score?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three reporting 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 these methods vary, the differences aren't huge; each agency uses the following factors in calculating a credit score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers have a score above 620.

Credit scores make a big difference in interest rates

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.

Raising your FICO score

Is it possible to raise your FICO score? Since the credit score is based on your lifelong credit history, it is difficult to change it quickly. (Of course you must remove incorrect data on your credit report.)

Know your FICO

Before you can improve your credit score, you must get your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are helpful information and tools that help you understand how to improve your FICO score.

You can get a free credit report every year from all three agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about credit scores? Call us: (541) 683-3300.

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