How's your FICO Score?

Because we live in a computer-driven world, it should come as no surprise that your creditworthiness boils down to one number. This score is compiled by credit reporting agencies. They use the payment history of all of your loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.

Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary formula for building a 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, the differences aren't huge; all of the agencies use the following in calculating a credit score:

  • Credit History - How long have you had credit?
  • Payment History - Do you have a history of late payments?
  • Credit Card Balances - How many accounts? How much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher is better. Most home buyers likely find their FICO scores falling between 620 and 800.

Your score affects your monthly payment

Did you know? 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.

Improving your score

What can you do about your FICO score? Unfortunately, not much. Because the score is entirely based on a lifetime of credit history, it's hard to make a significant improvement in the score with quick fixes. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.

How do I find out my credit score?

To improve your credit score, you've got to obtain the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. They also provide information and online tools that help you understand how to improve your credit score.

You can get a free credit report every year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

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

Curious about your credit score? Call us at 3103737406.

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