About the FICO Credit Score

Because we live in an automated, it should come as no surprise that your creditworthiness boils down to one number. The FICO score is compiled by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans etcetera.

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, each agency uses the following to build a credit score:

  • Credit History - Have you had credit for years, or for a short time?
  • History of Payments - Do you have a history of late payments?
  • Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher scores are better. Most borrowers getting a mortgage have a score above 620.

Credit scores make a difference in interest rates

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 raise my credit score?

What can you do to raise your FICO score? Very little in the short term. Because the credit score is based on a lifetime of credit history, it's difficult to change it quickly. You must appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.

Know your FICO score

Before you can improve your score, you must know your score and ensure that the reports from each reporting agency are correct. 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 credit reports from all three credit reporting agencies. 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 federally-mandated free credit report once per year from the three major credit reporting agencies at AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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

Want to know more about your FICO score? Give us a call at (334) 285-8850.

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