You Credit Score: How's Your FICO?

Because our world is so automated, you're probably not surprised to hear that your creditworthiness comes down to one number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, 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. The original FICO was developed by Fair Isaac and Company. 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, each agency uses the following to determine a credit score:

  • Credit History - Have you had credit for years, or for a short time?
  • History of Payments - Do you have any payments later than 30 days?
  • Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher scores are better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

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

Raising your credit score

What can you do about your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must appeal incorrect items on your credit report.)

Getting your FICO score

Before you can improve your FICO score, you have to get your score and be sure that the reports from each agency are correct. Fair Isaac, the company that invented the first FICO score, sells scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. They also provide helpful information and tools that help you improve your FICO score.

You can get a free credit report once per year from the three major agencies by visiting 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 will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Give us a call at (718) 477-4405.

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