How's your FICO Score?

Since our society is so automated, it should come as no surprise that your ability to repay your mortgage comes down to one number. Credit reporting agencies use your history of paying all types of loans in order to create a FICO score.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following factors to build a score:

  • Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you hold? How much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should remove incorrect data on your credit report.)

Getting your credit score

Before you can improve your score, you have to know your score and ensure that the credit reports from each agency are correct. Fair Isaac, the company that invented the original FICO credit score, offers credit scores on myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that can help you understand how to improve your FICO score.

You can get a free credit report once per year from the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

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

Want to know more about your FICO score? Give us a call at (541) 683-3300.

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