How's your FICO Score?

Because our world is so automated, it should come as no surprise that your creditworthiness boils down to one number. Credit reporting agencies use your history of paying loans in order to compile your FICO score.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building your 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following in building your credit score:

  • Credit History - How many years have you had credit?
  • History of Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you hold? How much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will likely find their scores between 620 and 800.

Credit scores make a difference in your interest rate

Credit 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.

Can I improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is entirely based on a lifetime of credit history, it's very difficult to make a significant change in the number with quick fixes. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my credit score?

To improve your credit score, you've got to obtain the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the first FICO credit score, sells scores on myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. They also provide information and tools that can help you improve your credit score.

You can get a federally-mandated free credit report every 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.

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

Curious about your credit score? Call us: (334) 285-8850.

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