About the FICO Credit Score

Since we live in an automated, it should come as no surprise that your creditworthiness boils down to a single number. Credit reporting agencies use your history of paying loans in order to create a FICO score.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. 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, all of the agencies use the following to calculate your score:

  • Your Credit History - How many years have you had credit?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
  • 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 results are added up and distilled into a single number. Credit 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 falling between 620 and 800.

Credit scores make a difference in interest rates

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 FICO 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. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO score

Before you can improve your score, you have to know your score and make sure that the credit reports from each agency are correct. Fair Isaac, the company that invented the original FICO credit score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide 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 once per year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it 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 right mortgage for you.

Curious about credit scores? Give us a call: (718) 639-9500.

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