FICO Credit Scores: What Do They Mean?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to just one number. Credit reporting agencies use your history of paying loans in order to build a FICO score.

Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; each agency uses the following to build a score:

• Your Credit History - How many years have you had credit?
• Late Payments - Have you paid more than 30 days late, and how often?
• Balances on your Credit Cards - How many accounts? 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. Each formula produces a single number which may vary slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers will probably find their scores above 620.

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 a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my 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. (Of course you must appeal incorrect items on your credit report.)

Know your FICO

To improve your score, you've got to have the reports that are used to build it, and of course, you need the score itself. 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 credit reporting agencies. Also available are helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from all three credit reporting 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.

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

Curious about credit scores? Give us a call: (941) 366-5800.