FICO - Your Credit Score

Since our world is so computer-driven, you're probably not surprised to hear that your creditworthiness boils down to a single number. The years of paying your various bills: your mortgage, car 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.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary 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 each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following factors to build your credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you have? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. Credit scores range from 300 to 800. Higher is always better. Typical home buyers probably find their FICO scores falling above 620.

Your score greatly affects how much you pay in interest every month

Did you know? 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.

Raising your credit score

What can you do to raise your FICO score? Very little in the short term. Because the FICO score is based on your lifelong credit history, it's very difficult to significantly improve the score 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 problems.

Getting your FICO score

To improve your FICO score, you've got to get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the first FICO score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. Also available are information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from the three major credit reporting agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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

Curious about credit scores? Call us: 866-840-8745 x2.