About the FICO Credit Score

Because we live in an automated, you're probably not surprised to hear that your ability to repay your mortgage loan boils down to one number. The FICO score is created by credit agencies. These agencies use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building your 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 the formulas vary, the differences aren't huge; they all use the following in calculating your score:

  • Credit History - Have you had credit for years, or for a short time?
  • Payment History - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers in the current environment have a score above 620.

FICO makes a huge difference in interest rates

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.

Improving your score

What can you do to raise your FICO score? Unfortunately, not much. Since the credit score is entirely based on your lifelong credit history, it is hard to make a significant change in the score with quick fixes. (Of course you must have incorrect items removed from your credit report.)

Getting your FICO score

To improve your FICO score, you've got to get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO credit score, sells credit scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are 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 the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

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

Curious about your credit score? Give us a call at (858) 485-5800.