Scoring your Credit - How's your FICO?
Because our society is so automated, it's probably not that surprising that your creditworthiness comes down to one number.
This score is created by credit reporting agencies. They use the payment history from your various loans: credit cards, mortgages, car loans and the like.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, each agency uses the following to calculate a score:
- Credit History - How long have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
- Inquiries on Your Credit - How many times have lenders pulled your credit report 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 varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers probably find their credit scores falling between 620 and 800.
Not just for qualifying
FICO 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.
Improving your score
Is it possible to raise your FICO score? Since the FICO score is entirely based on your lifelong credit history, it's difficult to make a significant change in the score with quick fixes. You should remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.
How do I find out my FICO score?
Before you can improve your score, you must get your score and make certain that the credit 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 to quickly get your FICO from all three agencies, along with your credit report. Also available are information and online tools that help you improve your FICO score.
You can get a free credit report once a year from all three credit reporting agencies when you visit 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.
Curious about your credit score? Call us: 4056158543.