Scoring your Credit - How's your FICO?

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Since our society is so automated, it should come as no surprise that your creditworthiness boils down to one number. The FICO score is built by credit agencies. They use the payment history from your various loans: credit cards, mortgages, car/boat loans and others.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO 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, the differences aren't huge; they all use the following to calculate a score:

• Your 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 accounts do you have, and how much do you owe?
• Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little by agency. Credit scores range from 300 to 800. Higher is always better. Most home buyers have a score above 620.

FICO makes a huge difference in your interest rate

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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.

Getting your credit score

Before you can improve your score, you have to obtain your score and be sure that the reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. Also available are helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

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

Curious about credit scores? Give us a call at 978-422-2311.