FICO - Your Credit Score

Because our society is so computer-driven, you're probably not surprised to hear that your ability to repay virtually any loan boils down to one number. This score is created by credit agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car/boat loans and others.

All three major 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 in building a score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher is always better. Most people who want to get a mortgage loan in the current environment score 620 or above.

FICO makes a huge difference in interest rates

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 improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)

Getting your credit score

Before you can improve your FICO 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. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. Also available are 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 once per year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about credit scores? Give us a call at 3038627760.