How's your FICO Score?

Because our world is so computer-driven, it's probably not that surprising that your creditworthiness comes down to one number. Credit reporting agencies use your history of paying all types of loans in order to build this score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO score 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to build a score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as 800. Higher is better. Most people getting a mortgage in the current environment have a score above 620.

Your credit score greatly affects your interest rate

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

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is calculated from your lifelong credit history, so you can't turn it around right away. You should, of course, remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

Getting your credit score

To raise your FICO score, you must have the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that help you improve your credit score.

You can get a federally-mandated free credit report once per year from the three major agencies at 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 obtain the right mortgage for you.

Curious about your credit score? Give us a call: 703.255-5810.

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