You Credit Score: How's Your FICO?

Because we live in a computer-driven society, it should come as no surprise that your creditworthiness boils down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model 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, the differences aren't huge; they all use the following factors in calculating a score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts do you have, and 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 credit score. Credit scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.

Your score greatly affects your interest rate

Credit 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.

Can I improve my FICO score?

What can you do to raise your FICO score? Very little in the short term. Because the score is entirely based on your lifelong credit history, it is hard to change it quickly. You should, of course, appeal for the credit agency to remove any incorrect reporting on your credit report; this is really the only "quick fix" for credit problems.

Getting your credit score

To improve your score, you've got to have the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO score.

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

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

Want to know more about credit scores? Give us a call at 2146635355.