FICO - Your Credit Score

Since we live in an automated, you're probably not surprised to hear that your creditworthiness boils down to one number. The FICO score is built by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary formula for building your 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 from one agency to another, all of the agencies use the following to build your credit score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • Payment History - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers in the current environment have a score above 620.

FICO makes a difference in interest rates

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my FICO score?

Is there any way to improve your FICO score? So called "credit repair" companies advertise quick fixes, but the score is based on your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)

Getting your credit score

Before you can improve your credit score, you have to know your score and ensure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that offered the original FICO score, sells credit scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide information and tools that help you understand how to improve your FICO score.

You can get a free credit report once a year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

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

Curious about your FICO score? Give us a call at 4357556622.