How's your FICO Score?

Since our world is so automated, it's probably not that surprising that your creditworthiness boils down to one number. Credit reporting agencies use your loan payment history in order to compile your FICO score.

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 these methods vary from one agency to another, all of the agencies use the following to determine your credit score:

  • Credit History - Have you had credit for many years, or for a short time?
  • Payment History - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. Credit scores range from 300 to 800. Higher is always better. Typical home buyers will probably find their FICO scores between 620 and 800.

Credit scores make a big difference in your interest rate

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I raise my FICO score?

What can you do to improve your FICO score? Very little in the short term. Since the score is based on a lifetime of credit history, it is hard to change it quickly. (Of course you must appeal incorrect items on your credit report.)

Know your FICO

Before you can improve your score, you must obtain your score and make certain that the credit reports from each agency are correct. Fair Isaac, the company that offered the original FICO credit score, sells scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you understand how to improve your FICO score.

You can get a free credit report once a year from all three agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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 credit scores? Call us at (985) 429-1770.

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