You Credit Score- How's Your FICO?

Since we live in a computer-driven world, it's probably not that surprising that your ability to repay virtually any loan boils down to one number. This score is compiled by credit agencies. They use the payment history of your various loans: mortgages, car loans, credit cards, etcetera.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO was developed by Fair Isaac and Company. 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 from one agency to another, each agency uses the following to calculate your credit score:

• Your Credit History - How long have you had credit?
• Late Payments - Do you have any payments later than 30 days?
• Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little by agency. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will likely find their credit scores above 620.

Your FICO score affects your interest rate

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.

Improving your score

Is it possible to raise your FICO score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifelong credit history, so it's not possible to raise it significantly in the short term. You must, of course, remove any incorrect data from your credit report, which is the only "quick fix" for credit troubles.

How do I find out my FICO score?

To improve your credit score, you must have the credit reports that are used to build it. Of course, you need the score as well. 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 reporting agencies. Also available are information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

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

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

Curious about credit scores? Give us a call at 3217777277.