You Credit Score- How's Your FICO?

Because we live in an automated, it's probably not that surprising that your ability to repay virtually any loan comes down to a single number. Credit reporting agencies use your history of paying loans in order to create this score.

Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building your credit 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 these methods vary, each agency uses the following to calculate your credit score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • History of Payments - Have you paid more than 30 days late, and how often?
  • Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers getting a mortgage in the current environment score 620 or above.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

What can you do about your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my credit score?

In order to raise your FICO score, you must obtain the reports that are used 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. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. Also available are information and tools that help you improve your FICO score.

You can get a free credit report every year from the three major credit reporting agencies by visiting 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Give us a call at 253-848-1255.

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