You Credit Score- How's Your FICO?

Because we live in an automated, it should come as no surprise that your ability to repay virtually any loan boils down to one number. Credit reporting agencies use your history of paying all types of loans in order to compile a FICO score.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . 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 build your score:

  • Your Credit History - How long have you had credit?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • 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 results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers these days have a score above 620.

FICO makes a huge difference in interest rates

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my credit score?

Is it possible to raise your FICO score? Since the score is based on your lifelong credit history, it's difficult to significantly improve the number with quick fixes. (Of course you must have incorrect items removed from your credit report.)

Know your FICO

In order to raise your score, you must get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide helpful information and tools that can help you improve your credit score.

You can get a federally-mandated free credit report once a year from all three agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about your credit score? Give us a call at 310-379-5997.

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