You Credit Score: How's Your FICO?

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Because our world is so automated, you're probably not surprised to hear that your ability to repay virtually any loan boils down to one number. Credit reporting agencies use your loan payment history to create this score.

Each of the three credit agencies has its own formula for building your credit score. The original FICO score 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine a score:

  • Credit History - How long have you had credit?
  • History of Payments - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many accounts do you have? 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?

These factors are weighted slightly differently depending on which formula the agency uses. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as 850. Higher is always better. Most home buyers will probably find their scores above 620.

FICO makes a huge difference in your interest rate

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.

Raising your credit score

What can you do about your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the FICO score is based on 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.)

How do I find out my credit score?

Before you can improve your score, you have to get your score and ensure that the reports from each credit reporting agency are correct. Fair Isaac, the company that offered the first FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are helpful information and tools that can help you improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

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

Curious about your FICO score? Give us a call at 281-542-7392.

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