FICO - Your Credit Score

Since our world is so computer-driven, you're probably not surprised to hear that your ability to repay virtually any loan comes down to one number. Credit reporting agencies use your payment history in order to build a FICO score.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO was developed by Fair Isaac and Company. 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, each agency uses the following to build your score:

• Your Credit History - How many years have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
• Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted slightly differently depending on the formula being used. Each formula produces a single number which may vary slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is better. Most borrowers who want to get a mortgage have a score above 620.

Your score greatly affects your monthly payment

Did you know? Credit 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.

Improving your score

What can you do to improve your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)

How do I find out my credit score?

Before you can improve your credit score, you have to obtain your score and make sure that the reports from each credit reporting agency are correct. Fair Isaac, the company that invented the original FICO credit score, offers scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. Also available are helpful information and tools that can help you improve your credit score.

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

Armed with this information, 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? Call us: 305-967-7200.