FICO Credit Scores: What Do They Mean?

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Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to just one number. Credit reporting agencies use your payment history to build a FICO score.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building a credit score. The original FICO score 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following 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?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
  • 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. Each formula produces a single number which may vary slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most folks getting a mortgage loan score 620 or above.

Not just for qualifying

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.

Can I raise my FICO score?

What can you do about your FICO score? Unfortunately, not much. Because the score is entirely based on a lifetime of credit history, it is difficult to change it quickly. (Of course you must appeal incorrect items on your credit report.)

Getting your credit score

Before you can improve your score, you have to get your score and make certain that the credit reports from each agency are correct. Fair Isaac, the corporation that offered the first FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. Also available are 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 agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.

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

Want to know more about your credit score? Give us a call at (325) 651-2100.