How's your FICO Score?

Since we live in an automated, it should come as no surprise that your creditworthiness boils down to a single number. Credit reporting agencies use your history of paying all types of loans to compile a FICO score.

Each of the three credit reporting 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 calculate a score:

  • Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Your credit score affects your interest rate

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 raise your FICO score? Very little in the short term. Since the credit score is entirely based on a lifetime of credit history, it's very hard to significantly improve the number with quick fixes. You must, of course, remove any incorrect reporting from your credit report; this is the only "quick fix" for credit problems.

How do I find out my FICO score?

In order to improve your FICO score, you've got to have the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that offered the original FICO credit score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

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

Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about credit scores? Give us a call: 352-369-4200.

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