You Credit Score: How's Your FICO?

Because our society is so automated, it should come as no surprise that your ability to repay virtually any loan comes down to one number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, the three major credit agencies, each have a 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 the formulas vary from one agency to another, the differences aren't huge; each agency uses the following factors to build a score:

• Credit History - Have you had credit for years, or for a short time?
• History of Payments - Do you have a history of late payments?
• Your Credit Card Balances - How many credit card accounts do you have, and 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 slightly differently depending on which formula the agency uses. The result is one number. Credit scores range from 300 to 800. Higher is always better. Most people getting a mortgage loan these days score 620 or above.

Not just for qualifying

Did you know? 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 raise my credit score?

Is it possible to improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

To raise your score, you must have the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the first FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. Also available are information and online tools that 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 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 information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Call us: (207) 571-8034.