FICO Credit Scores: What Do They Mean?

Since we live in an automated society, it should come as no surprise 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, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO score 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 each of the models considers a range of data available in your credit report, each agency uses the following to calculate a credit score:

  • 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?
  • Your Credit Card Balances - How many accounts do you carry? How much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers will likely find their FICO scores above 620.

Not just for qualifying

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Improving your 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 appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only "quick fix" for credit troubles.

Know your FICO score

Before you can improve your FICO score, you have to obtain your score and make certain that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are helpful information and tools that 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 all three agencies at 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.

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

Want to know more about your FICO score? Call us: (305) 535-2230.

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