You Credit Score- How's Your FICO?

Because we live in a computer-driven world, you're probably not surprised to hear that your creditworthiness boils down to a single number. Credit reporting agencies use your history of paying loans in order to compile your FICO score.

All three credit reporting 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. 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, the differences aren't huge; they all use the following in building a credit score:

  • Credit History - Have you had credit for years, or for a short time?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most home buyers probably find their credit scores falling between 620 and 800.

Credit scores make a big 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 probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is based on your lifetime credit history, so you can't turn it around right away. You should appeal for the credit agency to remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

To improve your score, you've got to have the reports that the agencies use 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 get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once a year from all three credit reporting 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.

Now that you have all the facts, 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 (407) 898-7559.

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