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. The FICO score is compiled by credit reporting agencies. They use the payment history of your various loans: mortgages, car/motorcycle loans, credit cards, and others.

Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building a 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 these methods vary, the differences aren't huge; each agency uses the following factors to calculate your score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have a history of late payments?
  • Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most people getting a mortgage these days score 620 or above.

Not just for qualifying

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 credit score

How can you improve your credit score? Since the FICO score is based on your lifelong credit history, it's difficult to make a significant improvement in the number with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)

Know your FICO

To improve your FICO score, you must get the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. Also available are 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 when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Call us: (713) 528-1245.

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