You Credit Score- How's Your FICO?

Because our society is so computer-driven, it should come as no surprise that your creditworthiness boils down to one number. This score is created by credit reporting agencies. They use the payment history of your various loans: credit cards, mortgages, car/boat loans and others.

The three reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, each agency uses the following to calculate your score:

  • Credit History - How many years have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts do you hold? How much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these factors 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 scores are better. Most home buyers in the current environment have a score above 620.

FICO makes a big difference in your interest rate

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is based on your lifelong credit history, it's hard to change it quickly. (Of course you must appeal incorrect items on your credit report.)

Know your FICO score

Before you can improve your score, you have to get your score and ensure that the credit 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 along with credit reports from all three agencies. They also provide information and online tools that help you improve your FICO score.

You can get a free credit report once a year from the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Give us a call: 3038627760.