How's your FICO Score?

Since we live in a computer-driven society, it should come as no surprise that your ability to repay virtually any loan comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO score was developed by Fair Isaac and Company. 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 factors to build a credit score:

  • Your Credit History - How long have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted differently depending on which formula the agency uses. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher is better. Typical home buyers will likely find their FICO scores falling above 620.

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.

Improving your score

How can you improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.

How do I find out my credit score?

In order to raise your score, you must have the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO score, offers 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 helpful 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 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.

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

Curious about your credit score? Call us: (443) 619-7900.

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