FICO - Your Credit Score

Since we live in a computer-driven society, you're probably not surprised to hear that your ability to repay virtually any loan boils down to one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

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

  • Your Credit History - How long have you had credit?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. 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 better. Typical home buyers likely find their scores above 620.

Credit scores make a difference in interest rates

Did you know? 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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is based on your lifelong credit history, it's very difficult to change it quickly. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my credit score?

Before you can improve your credit score, you must know your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. They also provide helpful 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 per year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

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

Want to know more about credit scores? Give us a call: (860) 658-7100.

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