Scoring your Credit - How's your FICO?

Since our world is so computer-driven, you're probably not surprised to hear that your ability to repay virtually any loan comes down to a single number. Credit reporting agencies use your payment history in order to build your FICO score.

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 each of the models considers a range of data available in your credit report, each agency uses the following to determine your credit score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • Payment History - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
  • 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 slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

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 a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must remove any incorrect reporting on your credit report; this is really the only way to quickly improve your credit score.

How do I find out my credit score?

Before you can improve your FICO score, you have to know your score and make certain that the credit reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. Also available are information and tools that help you understand how to improve your credit score.

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

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

Curious about credit scores? Call us: 5617752724.