Scoring your Credit - How's your FICO?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan boils down to a single number. This score is built by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car loans, credit cards, etcetera.

The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO model 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, all of the agencies use the following to calculate your score:

  • Your Credit History - How many years have you had credit?
  • Payment History - Do you have a history of late payments?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - 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 is better. Most home buyers these days have a score above 620.

Credit scores make a difference in your interest rate

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

How can you raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course, you must have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your FICO score, you have to obtain your score and be sure that the reports from each credit reporting agency are correct. Fair Isaac has created a website (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that can help you understand how to improve your FICO score.

You can get a federally-mandated free credit report once per year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

Now that you have all the facts, 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? Call us: (541) 683-3300.

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