FICO - Your Credit Score
Because our society is so automated, it's probably not that surprising that your creditworthiness boils down to a single number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit reporting agencies has its own formula for building your 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 the formulas vary, each agency uses the following to determine a credit score:
- Credit History - How many years have you had credit?
- Late Payments - Do you have a history of late payments?
- Credit Card Balances - How many accounts do you hold? How much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher is better. Most home buyers probably find their scores between 620 and 800.
Your credit score affects how much you pay in interest every month
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.
Raising your credit score
What can you do about your FICO score? Very little in the short term. Since the credit score is based on your lifelong credit history, it's hard to change it quickly. (Of course you must have incorrect items removed from your credit report.)
Getting your FICO score
To improve your score, you've got to have the reports that are used to build it. Of course, you need the score as well. 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 reporting agencies. Also available are information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once per year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free 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 obtain the right mortgage for you.
Curious about your FICO score? Give us a call at 5626935048.