You Credit Score- How's Your FICO?

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Since our world is so computer-driven, it's probably not that surprising that your creditworthiness comes down to a single number. The FICO score is compiled by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans and the like.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following to build a score:

• Your Credit History - Have you had credit for years, or for just a short time?
• History of Payments - Do you have a history of late payments?
• Credit Card Balances - 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 assigned weights based on the formula being used. Each formula produces a single number which may vary a a little by agency. Credit scores range from 300 to 800. Higher is better. Most folks getting a mortgage loan in the current environment score 620 or above.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Improving your score

What can you do to improve your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is formulated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You must, 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.

Getting your credit score

Before you can improve your FICO score, you must obtain your score and make sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you improve your FICO score.

You can get a free credit report once per year from all three credit reporting agencies when you visit 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 will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about your credit score? Give us a call: (972) 292-0448.