Scoring your Credit - How's your FICO?

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Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage comes down to a single number. This score is compiled by credit agencies. They use the payment history from your various loans: mortgages, car loans, credit cards, et cetera.

Each of the three credit agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. 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 each of the models considers a range of data available in your credit report, each agency uses the following to calculate your credit score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • Late Payments - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly from one agency to another. Credit scores range from 300 to 850. Higher scores are better. Typical home buyers probably find their credit scores between 620 and 850.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is based on your lifelong credit history, it is difficult to make a significant improvement in the score with quick fixes. You must, of course, remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

Before you can improve your FICO score, you must obtain your score and be sure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, offers credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are helpful information and online tools that can help you improve your FICO score.

You can get a federally-mandated free credit report once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your credit score? Call us: (408) 985-6400.



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