You Credit Score: How's Your FICO?

Because we live in an automated, it's probably not that surprising that your ability to repay virtually any loan comes down to a single number. Credit reporting agencies use your history of paying all types of loans in order to create this score.

Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . 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 determine a score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • Late Payments - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers who want to get a mortgage have a score above 620.

Your score greatly affects your monthly payment

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 probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

How can you improve your FICO score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you must remove incorrect data on your credit report.)

Getting your credit score

To improve your FICO score, you've got to get the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. Also available are helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report every year from all three credit reporting agencies at AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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

Curious about your FICO score? Give us a call: (510) 683-9850.

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