How's your FICO Score?

Because we live in an automated, it's probably not that surprising that your ability to repay virtually any loan boils down to a single number. The FICO score is created by credit agencies. They use the payment history of all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

Each of the three credit agencies has its own formula for building your 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, all of the agencies use the following to build a score:

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

These factors are assigned weights based on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers probably find their scores falling between 620 and 800.

Credit scores make a big difference in interest rates

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Improving your score

What can you do to improve your FICO score? Unfortunately, not much. Since the credit score is entirely based on your lifelong credit history, it's difficult to make a significant improvement in the score with quick fixes. You should, of course, remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.

Getting your credit score

Before you can improve your score, you must get your score and make sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that offered the first FICO credit score, sells FICO scores on myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. Also available are helpful information and online tools that can help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about your credit score? Call us at 4357556622.