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Scoring your Credit - How's your FICO?

In today's increasingly automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number. All the years you've been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:

  • Credit History - How long have you had credit?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How much do you owe on how many accounts?
  • Credit Inquiries - How many times have you had your credit checked?

Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 850, with higher being better. Typical home buyers likely find their scores falling between 600 and 850.

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate. Lenders often offer pricing incentives for borrowers who have exceptional credit scores (over 720 for example).

What can you do about your FICO score? Fortunately, we subscribe to a credit reporting service that has tools that help us to analyze what changes you could make to your credit profile that would improve your score. Sometimes it can be as simple as paying down a credit card a few hundred dollars, or closing an account. If there is derogatory information on your credit report which is not correct, we can have that information corrected and a new credit score issued usually within 72 hours.

Our high tech credit solutions are just a small part how we create value for our customers. Please call on us to run a complimentary credit report now, before you are in escrow to purchase your new home.