You Credit Score- How's Your FICO?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage boils down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary formula for building a 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 the formulas vary, each agency uses the following to build your credit score:

  • Credit History - How long have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers in the current environment have a score above 620.

FICO makes a difference in interest rates

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

Is there any way to improve your credit score? Because the FICO score is based on a lifetime of credit history, it's very difficult to change it quickly. You should, of course, remove any incorrect reporting from your credit report, which 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 get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that help you improve your credit score.

You can get a free credit report once per year from the three major agencies by visiting 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 info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about your FICO score? Call us at (203) 526-9345.

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