You Credit Score: How's Your FICO?

Because our world is so computer-driven, it's probably not that surprising that your creditworthiness comes down to one number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three reporting 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors in calculating a score:

• Credit History - How long 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?
• 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 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 always better. Most home buyers have a score above 620.

Credit scores make a huge difference in your interest rate

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

What can you do to improve your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my FICO score?

To raise your score, you must have the credit reports that the agencies use 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 to quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

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

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

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