Scoring your Credit - How's your FICO?

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

All three major 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 factors to calculate a score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you have? 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. FICO scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

Your score affects your monthly payment

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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is based on your lifelong credit history, it's difficult to change it quickly. You must remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

In order to improve your credit score, you've got to obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO credit score, offers scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide information and online tools that help you understand how to improve your credit score.

You can get a federally-mandated free credit report once per year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

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

Want to know more about your credit score? Give us a call: 610-565-3600.