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How's your FICO Score?

Since our society is so computer-driven, it should come as no surprise that your creditworthiness boils down to one number. Credit reporting agencies use your history of paying loans in order to compile this score.

Each of the three credit reporting agencies has its own formula for building your 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 each of the models considers a range of data available in your credit report, each agency uses the following to calculate your score:

  • Credit History - Have you had credit for many years, or for a short time?
  • Late Payments - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.

Not just for qualifying

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.

Can I raise my FICO score?

What can you do to raise 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. You should appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.

How do I find out my FICO score?

In order to raise your score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from the three major credit reporting agencies at 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 info, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Call us: (909) 467-1090.

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