About the FICO Credit Score

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

Each of the three credit reporting agencies has its own formula for building your 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, the differences aren't huge; all of the agencies use the following to build a score:

• Your Credit History - How long have you had credit?
• Late Payments - Do you pay your bills on time?
• Your Credit Card Balances - How many accounts do you hold, and how much do you owe?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers probably find their scores between 620 and 800.

Credit scores make a huge difference in interest rates

Credit 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.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is entirely based on a lifetime of credit history, it's very difficult to change it quickly. You must remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

Know your FICO

Before you can improve your credit score, you have to obtain your score and make certain that the reports from each reporting agency are correct. Fair Isaac, the company that offered the original FICO score, offers scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. 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 free credit report once per year from all three credit reporting agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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

Curious about credit scores? Call us at (281) 778-0805.