How's your FICO Score?

Because we live in a computer-driven society, it should come as no surprise that your creditworthiness comes down to a single number. This score is built by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

Each of the three credit 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 build a score:

  • Credit History - How long have you had credit?
  • Payment History - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The result is one number. Credit scores range from 300 to 800. Higher scores are better. Most people who want to get a mortgage have a score above 620.

FICO makes a big 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 a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

What can you do about 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 should remove any incorrect data from your credit report; this is really the only "quick fix" for credit troubles.

How do I find out my FICO score?

Before you can improve your FICO score, you have to know your score and be sure that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the first FICO score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide helpful information and online tools that can help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from the three major 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 obtain the most favorable mortgage.

Curious about your credit score? Give us a call: (512) 335-7800.

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