You Credit Score: How's Your FICO?

Because we live in a computer-driven world, you're probably not surprised to hear that your ability to repay virtually any loan comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, 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 a 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; all of the agencies use the following to build a score:

  • Credit History - How long have you had credit?
  • Payment History - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score above 620.

Your credit score greatly affects your interest rate

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the FICO score is based on a lifetime of credit history, it's very difficult to change it quickly. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my FICO score?

To raise your score, you've got to 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 quickly get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and tools that can help you improve your credit score.

You can get a federally-mandated free credit report once a year from all three credit reporting agencies at 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about credit scores? Give us a call: 8668408745.


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Carter Financial Solutions

2291 W. March Ln Suite A100
Stockton, CA 95207