You Credit Score: How's Your FICO?

Since we live in a computer-driven world, you're probably not surprised to hear 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, 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 these methods vary, all of the agencies use the following to determine your credit score:

  • Credit History - Have you had credit for many years, or for just a short time?
  • History of Payments - Do you have any payments later than 30 days?
  • Credit Card Balances - How many accounts do you have? How much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers likely find their scores between 620 and 800.

Your credit score greatly affects your monthly payment

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.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is based on your lifelong credit history, it's hard to change it quickly. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO

In order to raise your score, you've got to get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that offered the first FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that can help you improve your FICO score.

You can get a federally-mandated free credit report once a year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very 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.

Curious about credit scores? Call us: 3038627760.