Scoring your Credit - How's your FICO?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to a single number. This score is built by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.

The three reporting agencies use slightly different formulas to build 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following to calculate a score:

  • Credit History - Have you had credit for years, or for just a short time?
  • Late Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most people who want to get a mortgage have a score above 620.

Your score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. 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 FICO score is entirely based on your lifelong credit history, it's very difficult to change it quickly. You must, of course, remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Getting your credit score

To raise your credit score, you've got to obtain the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once a year from all three agencies by visiting 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 get the right mortgage for you.

Curious about credit scores? Give us a call: 405-513-7700.

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