FICO - Your Credit Score

Because we live in a computer-driven society, it should come as no surprise that your ability to repay virtually any loan comes down to one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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; all of the agencies use the following factors to calculate your score:

  • 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? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most borrowers getting a mortgage these days have a score above 620.

FICO makes a difference in interest rates

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.

Can I improve my credit score?

What can you do to raise your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO

To improve your score, you've got to get the credit 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 quickly get your FICO score from all three agencies, along with your credit report. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once a year from all three agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

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

Curious about credit scores? Give us a call: (207) 571-8034.