About the FICO Credit Score

Since we live in an automated, you're probably not surprised to hear that your ability to repay virtually any loan boils down to one number. Credit reporting agencies use your loan payment history to compile this score.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO 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 the formulas vary, all of the agencies use the following to determine a score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • Late Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - 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 weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Most borrowers getting a mortgage 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. Lenders give lower interest rates to individuals with higher scores.

Can I improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the FICO score is entirely based on a lifetime of credit history, it's very hard to change it quickly. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.

How do I find out my credit score?

To improve your FICO 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 to get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from the three major 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.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Give us a call: (860) 658-7100.

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