FICO Credit Scores: What Do They Mean?

Since our world is so automated, you're probably not surprised to hear that your creditworthiness comes down to one number. The FICO score is built by credit agencies. They use the payment history of your various loans: mortgages, car loans, credit cards, etcetera.

The three agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company. 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, all of the agencies use the following to calculate a credit score:

• Credit History - How long have you had credit?
• History of Payments - Have you paid more than 30 days late?
• Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
• 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. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

Is there any way to raise your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is formulated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should, of course, remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

Before you can improve your score, you must know your score and ensure 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 to quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and online 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 all three credit reporting 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.

Armed with this info, you'll 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: 5626935048.