You Credit Score: How's Your FICO?

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Since we live in a computer-driven society, it should come as no surprise that your creditworthiness comes down to one number. Credit reporting agencies use your history of paying loans to build your FICO score.

TransUnion, Equifax, and Experian, the three major credit agencies, each have a proprietary formula for building a 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to determine a credit score:

• Your Credit History - Have you had credit for many years, or for a short time?
• History of Payments - Do you have a history of late payments?
• Credit Card Balances - How many accounts do you hold, and how much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most folks who want to get a mortgage loan in the current environment have a score above 620.

Your FICO score affects your interest rate

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 entirely based on a lifetime of credit history, it's very hard to make a significant change in the score with quick fixes. You must remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

Before you can improve your FICO score, you have to obtain your score and be sure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. They also provide helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very 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.

Curious about credit scores? Give us a call: 415-381-7006.