Scoring your Credit - How's your FICO?
Because our society is so computer-driven, it should come as no surprise that your creditworthiness boils down to a single number.
The FICO score is created by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO 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 these methods vary from one agency to another, all of the agencies use the following to calculate your credit score:
- Credit History - How many years have you had credit?
- History of Payments - Do you pay your bills on time?
- Credit Card Balances - How many accounts do you hold? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted slightly differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.
FICO makes a big difference in interest rates
Did you know? 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.
Can I improve my FICO score?
How can you improve your FICO score? Because the credit score is entirely based on your lifelong credit history, it's very hard to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)
Getting your FICO score
Before you can improve your credit score, you have to get your score and ensure that the reports from each agency are correct. Fair Isaac, the company that invented the original FICO credit score, sells scores on myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. Also available are helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.
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 credit score? Call us: 5613734149.