How's your FICO Score?

Because we live in an automated, it should come as no surprise that your creditworthiness boils down to one number. The FICO score is created by credit agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building a credit score. The original FICO score was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, the differences aren't huge; each agency uses the following factors in calculating a credit score:

  • Credit History - How long have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts? 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 a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers will probably find their scores between 620 and 800.

FICO makes a huge difference in your interest rate

Did you know? 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.

Raising your credit score

How can you improve your FICO score? So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifetime credit history, so you can't turn it around right away. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

To improve your score, you've got to obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that help you improve your FICO score.

You can get a free credit report every year from the three major 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 obtain the most favorable mortgage.

Curious about credit scores? Call us at (904) 342-3622.

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