Scoring your Credit - How's your FICO?
Because our society is so automated, it's probably not that surprising that your creditworthiness boils down to one number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. .
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, each agency uses the following to build your credit score:
- Your Credit History - How long have you had credit?
- History of Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers have a score above 620.
Not just for qualifying
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.
Improving your score
How can you raise your FICO score? Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you must have incorrect items removed from your credit report.)
Know your FICO score
In order to raise your FICO score, you've got to get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO score, offers scores on its website: myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide helpful 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 every year from the three major credit reporting agencies when you visit 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 will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about your FICO score? Give us a call: (800) 288-9693.