FICO - Your Credit Score

Since our world is so automated, it should come as no surprise that your ability to repay virtually any loan comes down to one number. This score is created by credit agencies. They use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building your 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 the formulas vary, the differences aren't huge; all of the agencies use the following factors to build your score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted 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 have a score above 620.

Not just for qualifying

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?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is formulated from your lifetime credit history, so you can't turn it around right away. You should, of course, remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.

How do I find out my FICO score?

Before you can improve your credit score, you must know your score and make certain that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, offers credit scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and online 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 a year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit 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 get the right mortgage for you.

Curious about your FICO score? Give us a call: (334) 285-8850.

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