Scoring your Credit - How's your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors to build your score:

  • Credit History - How long have you had credit?
  • 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?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher scores are better. Most borrowers who want to get a mortgage score 620 or above.

Your score greatly affects your interest rate

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

How can you raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.

Know your FICO score

To raise your FICO score, you must have the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company 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 can help you understand how to improve your FICO score.

You can get a free credit report every year from the three major credit reporting agencies when you visit 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 obtain the right mortgage for you.

Curious about credit scores? Call us: 405-513-7700.

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