How's your FICO Score?

Since we live in a computer-driven society, it should come as no surprise that your creditworthiness boils down to a single number. This score is created by credit reporting agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and others.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. . 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 factors to calculate a credit score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these is assigned a value and a weight. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher is better. Most folks getting a mortgage loan have a score above 620.

FICO makes a difference in your interest rate

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.

Can I raise my credit score?

What can you do about your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should 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 score

Before you can improve your credit score, you have to know your score and be sure that the credit reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide information and online tools that help you improve your credit score.

You can get a free credit report every year from all three 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 your credit score? Give us a call: (904) 342-3622.

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