About the FICO Credit Score

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Since we live in a computer-driven society, it's probably not that surprising that your creditworthiness comes down to one number. Credit reporting agencies use your history of paying loans to compile a FICO score.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary formula for building your credit score. The original FICO score was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, each agency uses the following to calculate your credit score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you have, and how much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers will likely find their FICO scores between 620 and 800.

FICO makes a huge difference in interest rates

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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is entirely based on a lifetime of credit history, it is difficult to change it quickly. You should appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.

How do I find out my FICO score?

In order to improve your FICO score, you must get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are information and online tools that help you improve your credit score.

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

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

Want to know more about your credit score? Call us at (408) 540-0200.

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