FICO - Your Credit Score

Since our society is so computer-driven, it should come as no surprise that your creditworthiness comes down to one number. This score is compiled by credit agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, etcetera.

The three reporting 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 the formulas vary, the differences aren't huge; they all use the following factors to calculate your credit score:

  • Credit History - How long have you had credit?
  • Late 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?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher is better. Most borrowers who want to get a mortgage have a score above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I raise my credit score?

Is there any way to improve your credit score? Since the score is entirely based on your lifelong credit history, it's difficult to make a significant change in the number with quick fixes. You should, of course, remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.

Know your FICO score

In order to improve your FICO score, you must get the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to 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 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.

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.

Curious about credit scores? Call us at 248-644-1200.

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