You Credit Score: How's Your FICO?
Since we live in a computer-driven society, you're probably not surprised to hear that your creditworthiness boils down to a single 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 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 these methods vary from one agency to another, all of the agencies use the following to calculate your score:
- Credit History - Have you had credit for many years, or for just a short time?
- Late Payments - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts do you hold? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers will probably find their FICO scores between 620 and 800.
FICO makes a huge difference in your interest rate
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
Is it possible to raise your credit score? So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifelong credit history, so you can't turn it around right away. You must, of course, appeal for the credit agency to remove any incorrect data from your credit report; this is the only "quick fix" for credit problems.
Getting your FICO score
Before you can improve your FICO score, you must know your score and make sure that the reports from each reporting agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, sells 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 information and tools that can 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 the three major agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about credit scores? Give us a call: 4056158543.