FICO Credit Scores: What Do They Mean?

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Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan boils down to just one number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Co (FICO) originally 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, all of the agencies use the following to determine your credit score:

  • Credit History - How long have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as the low 800's. Higher scores are better.

Your credit score affects the monthly payment

Did you know? FICO scores affect more than your ability to get a loan. They also can affect the interest rate. Lenders give lower interest rates to individuals with higher scores.

Improving your score

What can you do about your FICO score? Sometimes, very little in the short term. Since the credit score is based on a lifetime of credit history, it may be difficult to change it quickly. If your credit reports has incorrect items on the report, it is possible to have incorrect items removed from your credit report to increase your credit score timely. PRESUS Mortgage can possibly assist to make this a timely process in increasing your FICO score.

Know your FICO score

To raise your credit score, you've got to obtain the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO credit score, offers FICO scores on myFICO.com. 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 analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once a year from the three major credit reporting agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores and your ability to obtain a home loan? Call Peter Maurer at PRESUS Mortgage at 414-852-7317 or email Peter Maurer at pmaurer@presus.com.



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