About the FICO Credit Score

Since our society is so automated, you're probably not surprised to hear that your creditworthiness comes down to a single number. The FICO score is built by credit agencies. They use the payment history of your various loans: credit cards, mortgages, car/boat loans and others.

The three credit reporting agencies use slightly different formulas to build 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following factors to calculate your credit score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

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.

Can I raise my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)

How do I find out my credit score?

Before you can improve your FICO score, you have to obtain your score and ensure that the credit reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide information and online tools that help you understand how to improve your credit score.

You can get a free credit report once a 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.

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 credit scores? Give us a call at 954.920.9799.

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