You Credit Score- How's Your FICO?

Since we live in a computer-driven society, you're probably not surprised to hear that your creditworthiness boils down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three credit reporting agencies use slightly different formulas to build a 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, all of the agencies use the following to build a score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Credit Card Balances - How many accounts? 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 factors is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Typical home buyers will probably find their scores falling between 620 and 800.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

What can you do to raise your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

Getting your credit score

In order to improve your score, you've got to obtain the credit reports that the agencies use 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, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free 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 right mortgage for you.

Want to know more about your FICO score? Call us: 978-422-2311.

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