DO YOU KNOW YOUR FICO ?? 

Scoring your Credit - How IT'S Done

FICO scoring has become very important in every part of our credit lives......whether you're applying for a credit card, buying a car, refriderator or trying to get a mortgage your FICO score defines you as either "credit worthy or not".  The system isn't perfect...& you need to understand how it works so you're not negatively impacted.  There are three main credit bureaus that all merchants report information to.  Some report new information monthly, some quarterly.  Your score can change at any time, it's not set in stone.  When a creditor pulls your credit report each bureau scores the EXACT information it has on file at that instant.  This is why you see different scores from each bureau, not all creditors report to all 3 bureaus & sometimes if they do, for some reason they don't report the same information.  It's very important that you check your credit reports with all three bureaus on a regular basis to make sure that the correct information is on file.  There are several services you can take that will supply you with your score on line at any time.

Many of us use our credit cards for all purchases (earning points for air miles & other items) and then pay them off totally each month.....unfortunately the system does not recognize this .....it only recognizes the amount you owe at the time the report is pulled ....you get NO BROWNIE POINTS for paying your full amount off each month.  Depending on the exact time the report is pulled & when you paid off your balance & when the creditor reported can all make a difference in your score. 

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:

Each of these, and other items, are assigned a value and a weight. For example if you have a collection but you've paid it ....doesn't matter for the score, the fact you had it is what is important, paying if off will not improve your score immediately.....it will take a while, the older the paid off information the less importance it has, if it remains an outstanding collection that will continue to have a negative effect, same thing for a late pay, the more current the lower the score.  The results are added up and distilled into a single number. FICO scores range from 300 to 850, with higher being better. Typical home buyers likely find their scores falling between 600 and 800.  Most lenders recognize anything over 720+ to be an EXCELLANT credit risk.

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

What can you do about your FICO score? Unfortunately, not much. Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. The most important thing is to know your FICO score and to ensure that your credit history is correct. Conveniently, Fair Isaac has created a web site (www.myFICO.com) that let's you do just that. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available is some helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score. Each of the credit services offers similar services on their web sites: www.equifax.com, www.experian.com, and www.transunion.com.

Armed with this information, you will be a more informed consumer and better positioned to obtain the most favorable mortgage available to you.