How's your FICO Score?

Since our society is so automated, it's probably not that surprising that your creditworthiness boils down to one number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, 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 each of the models considers a range of data available in your credit report, each agency uses the following to calculate a credit score:

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

Each of these factors is assigned a value and a weight. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get a mortgage have a score above 620.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Improving your score

Is there any way to raise your credit score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you must appeal incorrect items on your credit report.)

Know your FICO

Before you can improve your FICO score, you must know your score and ensure that the reports from each reporting agency are correct. Fair Isaac, the corporation that offered the first FICO credit score, offers credit scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and tools that can 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 info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your credit score? Give us a call: (407) 898-7559.

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