About the FICO Credit Score

Since we live in an automated, you're probably not surprised to hear that your creditworthiness comes down to one number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 from one agency to another, the differences aren't huge; all of the agencies use the following factors in calculating your credit score:

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

These factors are assigned weights based 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. Most home buyers in the current environment have a score above 620.

Your FICO score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the score is entirely based on a lifetime of credit history, it is hard to make a significant change in the number with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)

Getting your FICO score

Before you can improve your score, you have to get your score and be sure that the reports from each reporting agency are correct. Fair Isaac, the corporation that offered the first FICO score, offers credit scores on myFICO.com. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you improve your credit score.

You can get a federally-mandated free credit report every year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast 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 credit scores? Give us a call: 305-967-7200.