FICO Credit Scores: What Do They Mean?
Since our world is so automated, it should come as no surprise that your creditworthiness boils down to one number.
All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. .
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, the differences aren't huge; all of the agencies use the following to calculate your score:
- Credit History - How many years have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers have a score above 620.
Your FICO score affects your monthly payment
Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Can I improve my credit score?
Is there any way to improve your FICO score? Because the FICO score is entirely based on your lifelong credit history, it is hard to change it quickly. You must remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.
Know your FICO
Before you can improve your credit score, you must get your score and make sure that the reports from each agency are correct. Fair Isaac, the company that offered the first FICO credit score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. Also available are information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from all three agencies at 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 will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about credit scores? Call us at 4056158543.