Scoring your Credit - How's your FICO?

Since our society is so automated, it should come as no surprise that your ability to repay your mortgage comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine your credit score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these 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. Typical home buyers will likely find their scores above 620.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Can I improve my credit score?

What can you do to raise your FICO score? Very little in the short term. Because the FICO score is based on your lifelong credit history, it's very difficult to significantly improve the number with quick fixes. You must, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

Before you can improve your FICO score, you must get your score and make sure that the reports from each agency are correct. Fair Isaac, the company that invented the original FICO credit score, sells scores on myFICO.com. It's inexpensive to get your FICO 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 by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Call us at (513) 713-1515.

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