Scoring your Credit - How's your FICO?

Because we live in a computer-driven society, it should come as no surprise that your creditworthiness boils down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three credit reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . 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 from one agency to another, the differences aren't huge; they all use the following factors in calculating a credit score:

  • Credit History - How many years have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly from one agency to another. FICO scores range from 300 to 800. Higher is always better. Most home buyers will probably find their FICO scores between 620 and 800.

Your FICO score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my credit score?

What can you do to raise your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is formulated from your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO score

Before you can improve your credit score, you have to know your score and make certain that the credit reports from each reporting 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 agencies. Also available are information and tools that help you understand how to improve your credit score.

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

Armed with this information, 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? Call us at (904) 342-3622.

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