FICO Credit Scores:
What Do They Mean?
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to just one number. This score is built by credit agencies. They use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.
The Credit Score: FICO
The three reporting agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company. 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; they all use the following in building your credit score:
- Credit History – How many years have you had credit?
- 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?
- Credit Inquiries – How many times have lenders pulled your credit for the purpose of lending you money?
These factors are weighted slightly differently depending on which formula the agency uses. The result is one number. Credit scores range from 300 to 850. Higher scores are better. Most borrowers who want to get a mortgage loan score 620 or above.
