You Credit Score: How's Your FICO?

Since our world is so computer-driven, it should come as no surprise that your creditworthiness comes down to one number. This score is built by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car loans and others.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model 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 the formulas vary from one agency to another, each agency uses the following to determine your credit score:

  • Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you have a history of late payments?
  • Credit Card Balances - How many accounts do you have? How much do you owe on your accounts?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers have a score above 620.

Your 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. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my FICO score?

What can you do to improve your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the FICO score is built on your lifetime credit history, so it's not possible to raise it significantly in the short term. You should remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

Before you can improve your credit score, you must obtain your score and ensure that the reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. Also available are helpful information and tools that help you understand how to improve your credit 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.

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? Give us a call at 352-369-4200.

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