Your FICO Score

Since our society is so automated, it’s probably not that surprising that your creditworthiness boils down to a single number. This score is built by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car/boat loans and the like.

The three credit reporting agencies use slightly different formulas to build a 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 the formulas vary, the differences aren’t huge; each agency uses the following factors in calculating your score:

  • Your Credit History – How many years have you had credit?
  • Payment History – Do you have any payments later than 30 days?
  • Balances on your Credit Cards – How many accounts do you carry? 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 results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most people who want to get a mortgage these days score 620 or above.

Credit scores make a huge difference in interest rates

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Unfortunately, there isn’t a lot you can do to immediately improve your credit score. Since the score is based on a lifetime of credit history, it is hard to significantly improve the score with quick fixes. (Of course you must appeal incorrect items on your credit report.)

How do I find out my FICO score?

To raise your score, you’ve got to obtain 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 to quickly get your FICO from all three agencies, along with your credit report. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from the three major 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.