How's your FICO Score?

Since our world is so computer-driven, it should come as no surprise that your creditworthiness boils down to a single number. This score is compiled by credit agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.

Each of the three credit agencies has its own formula for building your 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 these methods vary from one agency to another, all of the agencies use the following to calculate a credit score:

  • Credit History - Have you had credit for many years, or for just a short time?
  • Late Payments - Have you paid more than 30 days late?
  • Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted slightly differently depending on the formula being used. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers these days have a score above 620.

Your FICO score greatly affects your monthly payment

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

How can you raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should remove incorrect data on your credit report.)

How do I find out my credit score?

Before you can improve your credit score, you must know your score and make sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. They also provide 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 when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Call us: 978-422-2311.

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