FICO Credit Scores: What Do They Mean?

Since we live in an automated, you're probably not surprised to hear that your ability to repay your mortgage loan comes down to one number. This score is created by credit agencies. These agencies use the payment history from your various loans: mortgages, car loans, credit cards, etcetera.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO score was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, each agency uses the following to determine a score:

  • Credit History - Have you had credit for many years, or for just a short time?
  • Late Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher is better. Most borrowers getting a mortgage in the current environment have a score above 620.

FICO makes a huge difference in your interest rate

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.

Can I raise my credit score?

Is it possible to raise your credit score? Since the credit score is based on your lifelong credit history, it's very hard to change it quickly. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.

Know your FICO

Before you can improve your score, you have to obtain your score and be sure that the credit reports from each agency are correct. Fair Isaac, the company that invented the original FICO score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. They also provide 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 once a year from the three major credit reporting agencies by visiting 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'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about your FICO score? Give us a call: (718) 477-4405.

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