About the FICO Credit Score

Since we live in a computer-driven world, you're probably not surprised to hear that your creditworthiness comes down to one number. Credit reporting agencies use your payment history to create this score.

Each of the three credit reporting agencies has its own formula for building your 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 the formulas vary, each agency uses the following to build your score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report 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 can be as low as 300 and as high as 800. Higher is always better. Most home buyers these days have a score above 620.

Not just for qualifying

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.

Can I raise my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the FICO score is based on your lifelong credit history, it's very difficult to make a significant improvement in the number with quick fixes. You should appeal for the credit agency to remove any incorrect data on your credit report; this is the only "quick fix" for credit troubles.

Know your FICO

Before you can improve your credit score, you must know your score and be sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide information and online tools that can 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 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.

Armed with this info, you'll 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? Call us at 5623200510.

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