You Credit Score- How's Your FICO?

Because our world is so automated, it should come as no surprise that your creditworthiness boils down to one number. This score is built by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 each of the models considers a range of data available in your credit report, each agency uses the following to calculate a credit score:

  • Credit History - Have you had credit for years, or for a short time?
  • History of Payments - Do you have a history of late payments?
  • 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. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher scores are better. Typical home buyers will probably find their FICO scores above 620.

Credit scores make a big difference in interest rates

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 probably 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. Despite what you hear from "credit repair" companies, the FICO score is based on your lifetime credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)

Getting your credit score

To improve your FICO score, you must obtain the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO from all three agencies, along with your credit report. They also provide helpful information and tools that can help you understand how to improve your credit score.

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

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

Want to know more about credit scores? Give us a call: 3103737406.

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