How's your FICO Score?

Because our society is so automated, it's probably not that surprising that your creditworthiness boils down to one number. This score is compiled by credit reporting agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary 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 the formulas vary from one agency to another, all of the agencies use the following to calculate a credit score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Have you paid more than 30 days late, and how often?
  • Credit Card Balances - How many accounts do you have? How much do you owe?
  • Inquiries on Your 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 a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers likely find their credit scores between 620 and 800.

Not just for qualifying

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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.

Know your FICO

Before you can improve your credit score, you have to obtain your score and be sure that the reports from each reporting agency are correct. Fair Isaac, the company that offered the original FICO score, sells scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. They also provide information and online tools that help you understand how to improve your FICO score.

You can get a 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 fast and very inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your credit score? Call us at (434) 975-5626.

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