Scoring your Credit - How's your FICO?

Since we live in a computer-driven world, it's probably not that surprising that your creditworthiness boils down to a single number. This score is compiled by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans etcetera.

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

  • Your Credit History - Have you had credit for years, or for a short time?
  • Late Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers probably find their scores above 620.

Not just for qualifying

Did you know? 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.

Improving your score

What can you do to raise your FICO score? Very little in the short term. Since the score is based on a lifetime of credit history, it's hard to change it quickly. You must remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

In order to improve your credit score, you must obtain 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, fast, and easy to get your credit score along with reports from all three agencies. Also available are information and tools that help you understand how to improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies by visiting 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 most favorable mortgage.

Curious about your credit score? Give us a call: (443) 619-7900.

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