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FICO Credit Score

In our modern, automated society, your ability to repay your mortgage is often distilled down to a single number - your credit score. This score is a culmination of years of financial activity, including mortgage payments, vehicle payments, and credit card bills. It serves as an indicator of your likelihood to meet future financial obligations.

Three major credit reporting agencies - Equifax, TransUnion, and Experian - each have their proprietary formula for calculating a credit score. The original model for this score was developed by Fair Isaac and Co. Experian uses this model and refers to its score as FICO. Equifax’s model, based on FICO, is called BEACON, while TransUnion, which uses a slightly modified FICO, refers to its score as EMPIRICA. While these methods vary slightly, they all consider the following factors in calculating a score:

  • Credit History: How long have you had credit?
  • Payment History: Have you made any late payments?
  • Credit Card Balances: How many credit card accounts do you have, and what is your outstanding debt?
  • Credit Inquiries: How often have lenders pulled your credit report for lending purposes?

These factors are weighted differently depending on the formula used. The results are then compiled and distilled into a single number. Credit scores can range from as low as 300 to as high as 800, with higher scores being more favorable. Most home buyers have a score above 620.

Not just for qualifying:

It’s important to note that FICO scores affect more than just your ability to secure a loan. They also influence your interest rate, with lenders offering lower rates to individuals with higher scores.

Improving your score:

So, how can you improve your FICO score? Contrary to what “credit repair” companies might suggest, the FICO score is built on your lifetime credit history, so it can’t be improved overnight. However, you can (and should) appeal any incorrect items on your credit report.

Know your FICO score:

To improve your credit score, you need to know your current score and have the reports that the agencies use to build it. Fair Isaac, the corporation that invented the original FICO credit score, sells credit scores on myFICO.com. It’s a quick, easy, and inexpensive way to access your credit score and credit reports from all three credit reporting agencies. The site also offers information and tools to help you analyze which actions might have the greatest impact on your FICO score.

You can also obtain a federally-mandated free credit report once a year from all three credit reporting agencies at AnnualCreditReport.com. While you won’t get a free credit score from AnnualCreditReport.com, obtaining it is quick and inexpensive.

Armed with this information, you’ll be a more informed consumer, better positioned to secure the right mortgage for you. Understanding your FICO score is a crucial step in the home buying process, and it can open the door to better financial opportunities.

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Address:
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