About the FICO Credit Score
Since our society is so computer-driven, it should come as no surprise that your creditworthiness boils down to a single number.
The FICO score is built by credit reporting agencies. They use the payment history of all of your loans: credit cards, mortgages, car/boat loans and others.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 the formulas vary, the differences aren't huge; all of the agencies use the following to build a score:
- Your Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers will likely find their scores falling between 620 and 800.
FICO makes a huge 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 improve 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 formulated from your lifelong credit history, so you can't turn it around right away. You should remove any incorrect reporting on your credit report; this is really the only way to quickly improve your credit score.
Getting your credit score
In order to raise your FICO score, you must get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the original FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. Also available are information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once per year from the three major 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 will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your FICO score? Give us a call at 7202537070.