Scoring your Credit - How's your FICO?
Because our society is so automated, it's probably not that surprising that your ability to repay virtually any loan boils down to a single number.
Credit reporting agencies use your loan payment history in order to create a FICO score.
Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary formula for building 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 these methods vary from one agency to another, the differences aren't huge; they all use the following factors in building your score:
- Credit History - How long have you had credit?
- History of Payments - Do you pay your bills on time?
- Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most borrowers getting a mortgage have a score above 620.
Credit scores make a huge difference in your interest rate
FICO 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 FICO score
What can you do to raise your FICO score? Very little in the short term. Because the credit score is based on a lifetime of credit history, it's very hard to make a significant change in the score with quick fixes. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.
Getting your FICO score
To improve your credit score, you must have the credit reports that are used to build it, and of course, you need the score itself. 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 agencies, along with your credit report. They also provide helpful information and online tools that help you understand how to improve your credit score.
You can get a federally-mandated free credit report once per year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about credit scores? Give us a call at (303) 650-9400.