You Credit Score: How's Your FICO?

Since we live in an automated, you're probably not surprised to hear that your ability to repay virtually any loan boils down to a single number. The FICO score is created by credit agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and others.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 the formulas vary from one agency to another, each agency uses the following to calculate your credit score:

  • Your Credit History - How many years have you had credit?
  • Payment History - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you have? How much do you owe on your accounts?
  • 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 may vary slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most people getting a mortgage in the current environment have a score above 620.

Credit scores make a difference in your interest rate

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.

Can I raise my 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, remove any incorrect data 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 obtain your score and make certain that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, sells FICO scores on myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that can help you understand how to improve your credit score.

You can get a free credit report every 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 credit score? Give us a call: (650) 689-5684.

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