About the FICO Credit Score
Since we live in an automated, it should come as no surprise that your creditworthiness boils down to one number.
This score is compiled by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car loans, credit cards, etcetera.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company.
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, all of the agencies use the following to determine a credit score:
- Credit History - Have you had credit for years, or for a short time?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are assigned weights based on the formula being used. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 800. Higher is better. Most borrowers who want to get a mortgage loan in the current environment score 620 or above.
Credit scores make a big difference in your interest rate
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.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is built on your lifelong credit history, so you can't turn it around right away. You must appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit problems.
Know your FICO
To raise your score, you must 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 first FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide information and tools that can 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 all three credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick 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.
Want to know more about your FICO score? Give us a call: 3036509400.