You Credit Score: How's Your FICO?

Because we live in a computer-driven world, you're probably not surprised to hear that your creditworthiness boils down to a single number. Credit reporting agencies use your loan payment history in order to create a FICO score.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following in building a credit score:

  • Credit History - How long have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Credit Inquiries - 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 from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers probably find their credit scores falling between 620 and 800.

Credit scores make a difference in your interest rate

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Can I improve my credit score?

What can you do about your FICO score? Unfortunately, not much. So called "credit repair" companies advertise quick fixes, but the score is based on your lifelong credit history, so it's not possible to raise it significantly in the short term. You must remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.

How do I find out my credit score?

To improve your credit score, you must get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from all three credit reporting agencies by visiting 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.

Want to know more about credit scores? Call us at (650) 689-5684.

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Norcal Capital Group, Inc

1369 El Camino Real
Millbrae, CA 94030