About the FICO Credit Score

Since we live in a computer-driven society, it's probably not that surprising that your creditworthiness boils down to one number. This score is compiled by credit reporting agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and the like.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, the differences aren't huge; they all use the following in calculating a score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. FICO scores range from 300 to 800. Higher scores are better. Most home buyers probably find their FICO scores falling between 620 and 800.

Your FICO score affects how much you pay in interest every month

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.

Can I improve my FICO score?

What can you do to raise your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the FICO score is built on your lifelong credit history, so you can't turn it around right away. You must remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

Before you can improve your score, you have to get your score and make certain that the credit reports from each agency are correct. Fair Isaac, the corporation that offered the first FICO credit score, sells FICO scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. They also provide information and online tools that can help you improve your FICO score.

You can get a free credit report once per year from all three 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 get the most favorable mortgage.

Curious about credit scores? Call us: 305-967-7200.