You Credit Score- How's Your FICO?

Because our society is so automated, you're probably not surprised to hear that your creditworthiness boils down to one number. Credit reporting agencies use your payment history in order to build your FICO score.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 the formulas vary from one agency to another, each agency uses the following to calculate your score:

• Credit History - How long have you had credit?
• Payment History - Have you paid more than 30 days late, and how often?
• Balances on your Credit Cards - How many accounts do you hold? How much do you owe?
• Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. 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 is better. Most home buyers will likely find their credit scores between 620 and 800.

Your credit score affects your monthly payment

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.

Improving your score

What can you do about your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the FICO score is built on your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)

Getting your credit score

Before you can improve your score, you have to get your score and be sure that the credit reports from each agency are correct. 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 reports from all three reporting agencies. They also provide information and online tools that can help you understand how to improve your credit score.

You can get a free credit report once per year from the three major agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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