Scoring your Credit - How's your FICO?

Since our world is so automated, you're probably not surprised to hear that your ability to repay virtually any loan boils down to a single number. Credit reporting agencies use your history of paying loans to build this score.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building your credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "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 factors to calculate your credit score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Requests for Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is one number. FICO scores range from 300 to 800. Higher is better. Typical home buyers probably find their credit scores above 620.

Not just for qualifying

Did you know? 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.

Raising your FICO score

What can you do about your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)

Getting your FICO score

Before you can improve your score, you must get your score and make sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells credit scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from the three major 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.

Armed with this information, you'll 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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