FICO Credit Scores: What Do They Mean?

Since our society is so automated, it should come as no surprise that your ability to repay your mortgage boils down to one number. Credit reporting agencies use your loan payment history to create this score.

Each of the three credit reporting agencies has its own formula for building your 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, the differences aren't huge; each agency uses the following factors to build a credit score:

  • Credit History - Have you had credit for many years, or for just a short time?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly from one agency to another. FICO scores range from 300 to 800. Higher scores are better. Most home buyers will likely find their credit scores falling above 620.

Not just for qualifying

FICO 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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is entirely based on a lifetime of credit history, it's difficult to significantly improve the score with quick fixes. You must, of course, appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit problems.

How do I find out my FICO score?

To raise your FICO score, you must get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from the three major agencies by visiting 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 get the right mortgage for you.

Curious about your credit score? Call us: 3032282254.

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Firelight Mortgage Consultants

Company NMLS#: 381658

7887 East Belleview Ave Ste 1100
Englewood, CO 80111