Scoring your Credit - How's your FICO?

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Because our world is so automated, it should come as no surprise that your creditworthiness comes down to one number. Credit reporting agencies use your loan payment history in order to create a FICO score.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 the formulas vary from one agency to another, all of the agencies use the following to calculate your score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Inquiries on Your Credit - 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. Each formula produces a single number which may vary slightly by agency. Credit scores can be as low as 300 and as high as 850. Higher is always better. Typical home buyers will likely find their FICO scores falling between 620 and 850.

Not just for qualifying

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

What can you do to improve your FICO score? Very little in the short term. Since the FICO score is entirely based on a lifetime of credit history, it is hard to significantly improve the score with quick fixes. You must remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.

Getting your credit score

Before you can improve your credit score, you must obtain your score and be sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that can help you improve your FICO score.

You can get a federally-mandated free credit report every year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

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