How's your FICO Score?

Since our world is so computer-driven, it's probably not that surprising that your creditworthiness boils down to a single number. Credit reporting agencies use your history of paying loans to create a FICO score.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model 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 these methods vary, each agency uses the following to build a score:

  • Credit History - Have you had credit for many years, or for a short time?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher is better. Most folks who want to get a mortgage loan these days have a score above 620.

Not just for qualifying

Did you know? 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 improve my FICO score?

What can you do to improve your FICO score? Very little in the short term. Since the score is entirely based on a lifetime of credit history, it's very hard to significantly improve the score with quick fixes. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

To improve your score, you must get the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO credit score, offers 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. Also available are helpful 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 a year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

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 credit scores? Call us: (408) 626-1879.

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