FICO - Your Credit Score

Because our world is so automated, it should come as no surprise that your creditworthiness comes down to one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. . Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While these methods vary, the differences aren't huge; each agency uses the following factors in calculating a credit score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is always better. Most home buyers have a score above 620.

Your score affects your interest rate

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the score is entirely based on your lifelong credit history, it is hard to make a significant change in the score with quick fixes. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.

Know your FICO score

Before you can improve your score, you have to get your score and ensure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide information and tools that help you understand how to improve your credit score.

You can get a federally-mandated free credit report every year from all three credit reporting agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Give us a call at 2147187183.