How's your FICO Score?

Since our society is so computer-driven, you're probably not surprised to hear that your ability to repay virtually any loan comes down to one number. This score is compiled by credit agencies. They use the payment history of your various loans: credit cards, mortgages, car/boat loans etcetera.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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 the formulas vary, all of the agencies use the following to build a score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
  • Inquiries on Your 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 slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers will probably find their scores between 620 and 800.

Credit scores make a difference in 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 probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Is there any way to improve your credit score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should have incorrect items removed from your credit report.)

Getting your credit score

In order to raise your score, you've got to have the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. They also provide 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 agencies at AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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

Curious about your FICO score? Give us a call: (407) 889-4321.

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