How's your FICO Score?

Because our world is so automated, you're probably not surprised to hear that your creditworthiness comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be 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 reporting agencies, each have a proprietary formula for building a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "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 - How many years have you had credit?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little from one agency to another. FICO scores range from 300 to 800. Higher is better. Most borrowers who want to get a mortgage these days have a score above 620.

Your score affects your interest rate

Did you know? 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.

Raising your FICO score

What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is built on your lifetime credit history, so you can't turn it around right away. You should appeal for the credit agency to remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.

Getting your FICO score

To improve your FICO score, you must have the credit 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 score from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you understand how to improve your credit score.

You can get a free credit report once per 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 most favorable mortgage.

Curious about credit scores? Call us at 8668408745.


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Carter Financial Solutions

2291 W. March Ln Suite A100
Stockton, CA 95207