FICO - Your Credit Score

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Since we live in an automated society, it's not surprising that your ability to repay your mortgage comes down to just one 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.

Each of the three credit agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . 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 from one agency to another, the differences aren't huge; they all use the following factors to calculate your score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • 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 varies slightly by agency. Credit scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

Your score greatly affects your interest rate

Did you know? FICO 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. Because the score is based on a lifetime of credit history, it's difficult to change it quickly. You should, of course, remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

In order to raise your FICO score, you must get the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the first FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide helpful information and tools that can help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from all three credit reporting 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.

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

Curious about your FICO score? Call us at (903) 630-7049.

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