How's your FICO Score?

Because we live in an automated, it should come as no surprise that your creditworthiness comes down to one number. This score is created by credit reporting agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and others.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building a credit score. The original FICO score 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, the differences aren't huge; they all use the following to build your score:

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

These factors are weighted slightly differently depending on the formula being used. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get a mortgage loan in the current environment have a score above 620.

FICO makes a huge difference in interest rates

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

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is based on your lifelong credit history, it's hard to make a significant improvement in the score with quick fixes. (Of course you can and should remove incorrect data on your credit report.)

How do I find out my credit score?

Before you can improve your FICO score, you must obtain your score and ensure that the credit reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells FICO scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are information and tools that can help you improve your credit score.

You can get a free credit report once per year from all three credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your credit score? Give us a call: 214-865-7442.

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