FICO Credit Scores: What Do They Mean?
Since our world is so automated, you're probably not surprised to hear that your ability to repay virtually any loan boils down to a single number.
Credit reporting agencies use your history of paying loans to build your FICO score.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model was developed by Fair Isaac and Company.
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, all of the agencies use the following to calculate your credit score:
- Your Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late?
- Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are weighted differently depending on the formula being used. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers these days have a score above 620.
Not just for qualifying
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 credit score?
What can you do about your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, appeal for the credit agency to remove any incorrect reporting on your credit report; this is the only "quick fix" for credit troubles.
How do I find out my credit score?
In order to raise your score, you must obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO credit score, offers scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you improve your credit score.
You can get a free credit report once per year from all three credit reporting agencies at AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your credit score? Give us a call at (407) 889-4321.