Scoring your Credit - How's your FICO?

Because our society is so automated, it's probably not that surprising that your creditworthiness boils down to a single number. Credit reporting agencies use your payment history to build this score.

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

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you have, and how much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

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

Improving your score

Is it possible to raise your FICO score? Because the score is entirely based on your lifelong credit history, it's difficult to change it quickly. You should appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

Know your FICO

In order to improve your credit score, you've got to get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO score, offers FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are 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 agencies when you visit 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 information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Call us at 561-395-4264.