You Credit Score: How's Your FICO?

Because we live in a computer-driven world, it should come as no surprise that your ability to repay virtually any loan comes down to one number. The FICO score is built by credit agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.

The three agencies use slightly different formulas to build 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, all of the agencies use the following to determine your score:

• Your Credit History - How long have you had credit?
• Payment History - Do you pay your bills on time?
• Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will likely find their scores 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.

Improving your score

How can you improve your credit score? Since the FICO score is entirely based on a lifetime of credit history, it's difficult to make a significant improvement in the score with quick fixes. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report; this is really the only "quick fix" for credit troubles.

Getting your credit score

To improve your score, you've got to have the credit reports that are used 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, fast, and easy to get your credit score as well as credit reports from all three agencies. They also provide information and online tools that can help you understand how to improve your credit score.

You can get a free credit report once a year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

Now that you have all the facts, 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 your credit score? Call us at 2148657442.