You Credit Score: How's Your FICO?

Since we live in a computer-driven world, it's probably not that surprising that your creditworthiness comes down to a single number. Credit reporting agencies use your history of paying loans in order to compile a FICO score.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . 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 these methods vary, all of the agencies use the following to calculate your score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly by agency. FICO scores range from 300 to 800. Higher is always better. Most borrowers getting a mortgage loan have a score above 620.

Credit scores make a huge difference in interest rates

FICO 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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must appeal incorrect items on your credit report.)

How do I find out my FICO score?

Before you can improve your credit score, you must obtain your score and make sure that the credit reports from each agency are correct. Fair Isaac, the company that offered the first FICO credit score, sells FICO scores on myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. Also available are information and online tools that can help you understand how to improve your credit score.

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

Want to know more about your FICO score? Give us a call: (440) 234-9660.

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