FICO Credit Scores: What Do They Mean?
Because our society is so automated, it's probably not that surprising that your ability to repay virtually any loan boils down to one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit agencies has its own formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following to build your score:
- Credit History - How many years have you had credit?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are weighted a little bit differently depending on which formula the agency uses. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers have a score above 620.
Not just for qualifying
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO score
How can you raise your credit score? Because the score is based on your lifelong credit history, it is hard to significantly improve the score with quick fixes. You must, of course, appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only "quick fix" for credit problems.
How do I find out my credit score?
To raise your credit score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO score, sells scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you understand how to improve your credit score.
You can get a free credit report once per year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.
Armed with this information, 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: 4056158543.