FICO - Your Credit Score
Since our world is so computer-driven, you're probably not surprised to hear that your creditworthiness boils down to one number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, 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. Fair Isaac and Cooriginally developed this score. .
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; each agency uses the following in building your credit score:
- Credit History - Have you had credit for many years, or for just a short time?
- Payment History - Do you pay your bills on time?
- Credit Card Balances - How many accounts do you have? How much do you owe on your accounts?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on the formula being used. The result is one number. Credit scores range from 300 to 800. Higher is better. Typical home buyers will probably find their FICO scores falling between 620 and 800.
Credit scores make a difference in interest rates
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 raise my FICO score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is based on your lifetime credit history, so you can't turn it around right away. (Of course you can and should appeal incorrect items on your credit report.)
Getting your FICO score
Before you can improve your FICO score, you must know your score and make sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide information and online 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 a year from all three credit reporting agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about credit scores? Call us: 4056158543.