Who's This FICO, and Why Does He Get To Decide if I Can Buy a Home?

The mortgage on your home is most likely the largest loan you will ever get. Because of that, lenders want to make sure that you will pay it back. All those years you’ve made car payments, credit card payments, rent payments and even past mortgage payments is analyzed closely and turned into a number. This number is called a credit score and the higher it is, the more secure lenders feel. So how do they know what your credit score is?

The score comes from the three major credit reporting agencies: Equifax, Experian and TransUnion. Each of these agencies uses different systems to arrive at the score. The most well known is a FICO score, which is the score used by Experian. It is based on the model that Fair Isaac and Company developed, which is how it came by its name. Equifax has a model named BEACON and TransUnion uses one that is called EMPIRICA. Although each model considers a range of information, the primary factors are very the same:

Each of these items, as well as others, have a value and a weight that helps determine the final score. FICO scores range from 300 to 800 and the higher the score the better your credit. Most home buyers have a score somewhere between 600 and 800.

These scores don’t just determine whether or not you will qualify for the mortgage you want, but also can determine if you can get a better rate. The higher your score, the more likely the bank will give you a better rate.

In order to make sure you are getting the best FICO rate that you possibly can it is important that you check that all the information on your credit report is accurate. Fair Isaac has a website that lets you, for a small fee, get your FICO score from all three agencies along with your credit report. Equifax, Experian, and TransUnion also offer similar services.