You Credit Score- How's Your FICO?

Since we live in an automated, you're probably not surprised to hear that your creditworthiness boils down to a single number. This score is created by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and the like.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . 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 these methods vary, the differences aren't huge; all of the agencies use the following to build a score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • 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 you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Typical home buyers probably find their scores falling between 620 and 800.

Credit scores make a difference in interest rates

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 raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.

Know your FICO

Before you can improve your score, you have to get your score and ensure that the reports from each reporting agency are correct. Fair Isaac, the company that invented the first FICO score, sells FICO scores on myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide information and online tools that can help you improve your FICO score.

You can get a free credit report once a year from the three major agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

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

Want to know more about credit scores? Give us a call: (541) 683-3300.

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