About the FICO Credit Score

Because our society is so computer-driven, you're probably not surprised to hear that your creditworthiness boils down to a single number. This score is compiled by credit agencies. They use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and the like.

Each of the three credit reporting agencies has its own formula for building your credit 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, the differences aren't huge; each agency uses the following factors to calculate a score:

  • Your Credit History - How long have you had credit?
  • Payment History - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts? 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 weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary a a little by agency. Credit scores range from 300 to 800. Higher scores are better. Most home buyers will probably find their scores between 620 and 800.

Not just for qualifying

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 a lifetime of credit history, it's hard to significantly improve the number with quick fixes. You must, of course, appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.

Know your FICO

Before you can improve your FICO score, you must know your score and ensure that the reports from each credit reporting agency are correct. 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 as well as reports from all three reporting agencies. They also provide helpful information and online tools that can help you understand how to improve your FICO score.

You can get a free credit report every year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Give us a call: (310) 373-7406.

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