Scoring your Credit - How's your FICO?

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Because our world is so automated, it should come as no surprise that your creditworthiness comes down to one number. The FICO score is built by credit reporting agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans et cetera.

Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . 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 in building a score:

• Your Credit History - Have you had credit for many years, or for just a short time?
• Payment History - Do you pay your bills on time?
• Your Credit Card Balances - How many accounts do you carry? How much do you owe?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted slightly 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 always better. Typical home buyers probably find their credit scores falling between 620 and 800.

Credit scores make a big difference in interest rates

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.

Raising your FICO score

What can you do to raise your FICO score? Very little in the short term. Because the credit score is entirely based on a lifetime of credit history, it's hard to make a significant improvement in the number with quick fixes. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO

To improve your credit score, you've got to have 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, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from all three credit reporting agencies when you visit 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 will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about credit scores? Call us at 954-359-3000.