About the FICO Credit Score

Since we live in a computer-driven world, it should come as no surprise that your creditworthiness comes down to a single number. The years of 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.

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 these methods vary, the differences aren't huge; they all use the following factors to calculate your score:

  • Credit History - How long have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is better. Most borrowers who want to get a mortgage loan have a score above 620.

Your credit score affects your monthly payment

Did you know? 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?

Is it possible to improve your credit score? So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifelong credit history, so you can't turn it around right away. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

Know your FICO

In order to raise your FICO score, you've got to have the credit reports that are used 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, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

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

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about credit scores? Give us a call at 954.920.9799.

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