Scoring your Credit - How's your FICO?

Since our world is so computer-driven, you're probably not surprised to hear that your creditworthiness comes down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, 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 a proprietary formula for building your 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 the formulas vary, the differences aren't huge; all of the agencies use the following factors to build a credit score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • Payment History - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts? How much do you owe?
  • Inquiries on Your Credit - 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 result is one number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most borrowers who want to get a mortgage these days have a score above 620.

Your score greatly affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my credit score?

Is it possible to improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must 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?

Before you can improve your score, you must get your score and make certain that the reports from each reporting agency are correct. Fair Isaac, the corporation that invented the first FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. Also available are information and online tools that can 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 at AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

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

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