Scoring your Credit - How's your FICO?

Because our world is so computer-driven, it's probably not that surprising that your creditworthiness boils down to one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Experian, TransUnion, and Equifax, the three major credit 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 calculating your score:

  • Credit History - Have you had credit for years, or for a short time?
  • Payment History - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you have? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers will likely find their FICO scores above 620.

Your FICO score greatly affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

Is it possible to improve your FICO score? Since the FICO score is entirely based on your lifelong credit history, it's very difficult to change it quickly. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO

Before you can improve your score, you have to get your score and make sure that the credit reports from each agency are correct. Fair Isaac, the company that offered the first FICO score, offers scores on myFICO.com. It's inexpensive to quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report every year from all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.

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

Curious about credit scores? Call us: (317) 288-9434.

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