You Credit Score- How's Your FICO?

Because our society is so automated, it's probably not that surprising that your ability to repay virtually any loan comes down to a single number. This score is created by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and the like.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary formula for building your 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 the formulas vary, the differences aren't huge; each agency uses the following to calculate a credit score:

• Your Credit History - How many years have you had credit?
• History of Payments - Do you have a history of late payments?
• Balances on your Credit Cards - How many accounts? How much do you owe?
• Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is 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.

Raising your FICO score

Is there any way to improve your FICO score? Despite what you hear from "credit repair" companies, the score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. You should appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.

Know your FICO score

In order to raise your FICO score, you've got to get 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 reports from all three credit reporting agencies. They also provide information and online tools that help you improve your credit score.

You can get a 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 get the right mortgage for you.

Want to know more about credit scores? Give us a call at 504-866-5626.