Scoring your Credit - How's your FICO?

Since our world is so automated, it should come as no surprise that your creditworthiness boils down to one number. The FICO score is created by credit agencies. These agencies use the payment history from your various loans: mortgages, car loans, credit cards, etcetera.

The three agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following factors in building your score:

  • Credit History - Have you had credit for years, or for just a short time?
  • History of Payments - Have you paid more than 30 days late, and how often?
  • Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most folks who want to get a mortgage loan these days have a score above 620.

Credit scores make a difference in your interest rate

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, 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

Before you can improve your credit score, you have to get your score and make sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that invented the first FICO score, sells FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you improve your FICO score.

You can get a free credit report once per year from all three 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.

Want to know more about credit scores? Call us: (562) 693-5048.

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