FICO - Your Credit Score

Because our world is so automated, it should come as no surprise that your creditworthiness comes down to a single number. The FICO score is built by credit reporting agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car loans and the like.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model 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, the differences aren't huge; all of the agencies use the following factors to calculate a score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • Payment History - Have you paid more than 30 days late?
  • Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly by agency. Credit scores range from 300 to 800. Higher scores are better. Most borrowers getting a mortgage loan have a score above 620.

Your score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is based on your lifelong credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your FICO score, you have to obtain your score and make sure that the credit reports from each agency are correct. 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 along with credit reports from all three reporting agencies. Also available are information and online tools that can help you understand how to improve your credit score.

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

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Give us a call at 949-544-4908.

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