How's your FICO Score?
Since our world is so automated, it should come as no surprise that your creditworthiness boils down to a single number.
The FICO score is compiled by credit reporting agencies. They use the payment history of all of your loans: credit cards, mortgages, car/boat loans and the like.
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, each agency uses the following to determine a score:
- Your Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?
Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will likely find their credit scores between 620 and 800.
Credit scores make a huge difference in interest rates
FICO 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.
Raising your credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the FICO score is based on a lifetime of credit history, it's hard to make a significant change in the number with quick fixes. (Of course you must remove incorrect data on your credit report.)
Getting your credit score
Before you can improve your FICO score, you must get your score and be 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 as well as reports from all three credit reporting agencies. Also available are helpful information and tools that help you improve your FICO score.
You can get a 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.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about your credit score? Give us a call at 4056158543.