Scoring your Credit - How's your FICO?

Since our society is so computer-driven, you're probably not surprised to hear that your ability to repay virtually any loan comes down to a single number. The FICO score is compiled by credit agencies. They use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, and others.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO was developed by Fair Isaac and Company. 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, the differences aren't huge; each agency uses the following in calculating your score:

  • Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers probably find their credit scores between 620 and 800.

Credit scores make a difference in interest rates

Did you know? 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.

Improving your score

Is there any way to raise your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is built on your lifetime credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

Getting your FICO score

Before you can improve your FICO score, you must obtain your score and make sure that the reports from each credit reporting agency are correct. Fair Isaac, the company that invented the first FICO score, offers scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. They also provide information and tools that 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. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Call us: (773) 774-9040 Ext 121.

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