FICO Credit Scores: What Do They Mean?
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Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage boils down to just one number. Credit reporting agencies use your loan payment history in order to compile your FICO score.
Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building your credit score. Fair Isaac and Cooriginally 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, the differences aren't huge; each agency uses the following to build your credit score:
- Your Credit History - How many years have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 850. Higher scores are better. Most home buyers will probably find their credit scores falling above 620.
Not just for qualifying
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify you for a better mortgage rate.
With this information in mind, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about credit scores? Call us: (512) 537-8000.