FICO - Your Credit Score

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

Each of the three credit agencies has its own formula for building your credit score. The original FICO was developed by Fair Isaac and Company. 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 to calculate your credit score:

  • Credit History - How long have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you hold? How much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted slightly differently depending on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers likely find their FICO scores between 620 and 800.

Your credit score greatly affects your monthly payment

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

Can I improve my credit score?

Is it possible to raise your FICO score? So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifelong credit history, so it's not possible to raise it significantly in the short term. You must appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.

How do I find out my FICO score?

In order to improve your credit score, you must get 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. It's inexpensive to get your FICO from all three agencies, along with your credit report. Also available are 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 every year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.

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

Curious about credit scores? Call us: (860) 658-7100.

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