How's your FICO Score?

Because our world is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan comes down to one number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build 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 the formulas vary from one agency to another, the differences aren't huge; all of the agencies use the following factors in building your score:

  • 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 accounts? How much do you owe on your accounts?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers probably find their FICO scores between 620 and 800.

Credit scores make a big difference in 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.

Improving your score

What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should have incorrect items removed from your credit report.)

Getting your FICO score

Before you can improve your score, you have to know 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. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

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

Want to know more about credit scores? Call us at 3038627760.