About the FICO Credit Score

Since we live in an automated, you're probably not surprised to hear that your creditworthiness comes down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following in calculating a score:

  • Credit History - How long have you had credit?
  • History of Payments - Have you paid more than 30 days late, and how often?
  • Credit Card Balances - How many accounts do you have, and how much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. 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 in the current environment have a score above 620.

Credit scores make a huge difference in interest rates

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

What can you do about your FICO score? Very little in the short term. Since the credit score is based on your lifelong credit history, it's very hard to make a significant change in the number with quick fixes. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only "quick fix" for credit problems.

How do I find out my FICO score?

In order to improve your FICO score, you must obtain the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO from all three agencies, along with your credit report. They also provide helpful information and tools that can help you improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies by visiting 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.

Curious about your credit score? Give us a call at 305-967-7200.