FICO Credit Scores: What Do They Mean?

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Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan boils down to just one number. This score is created by credit agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car/boat loans and the like.

Each of the three credit agencies has its own formula for building your 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 the formulas vary, all of the agencies use the following to determine your score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts? 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 results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

Did you know? 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.

Can I improve my FICO score?

Is there any way to raise your credit score? Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifetime 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?

Before you can improve your FICO score, you have to get your score and be sure that the credit reports from each agency are correct. Fair Isaac, the company that offered the first FICO credit score, offers scores on its website: 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 information and tools that help you improve your credit score.

You can get a federally-mandated free credit report every year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

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

Curious about your credit score? Call us at (314) 395-8300.

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