About the FICO Credit Score
Since we live in an automated, it should come as no surprise that your ability to repay virtually any loan comes down to one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following factors to build a credit score:
- Your Credit History - How long have you had credit?
- Late Payments - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe on your accounts?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers who want to get a mortgage in the current environment score 620 or above.
Credit scores make a difference in your interest rate
Did you know? 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.
Can I improve my FICO 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 calculated from your lifelong credit history, so it's not possible to raise it significantly in the short term. You should remove any incorrect data on your credit report; this is really the only "quick fix" for credit problems.
Know your FICO
In order to improve your credit score, you've got to have the 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. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and tools that can help you understand how to improve your FICO score.
You can get a federally-mandated free credit report once per year from the three major credit reporting agencies by visiting 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your credit score? Call us: 4056158543.