You Credit Score: How's Your FICO?
Because we live in an automated, you're probably not surprised to hear that your creditworthiness comes down to one number.
This score is compiled by credit reporting agencies. They use the payment history of all of your loans: credit cards, mortgages, car/boat loans etcetera.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. .
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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following factors in calculating a credit score:
- Your Credit History - Have you had credit for many years, or for just a short time?
- Late Payments - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted a little bit 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 scores are better. Most people who want to get a mortgage loan score 620 or above.
Your credit score greatly affects how much you pay in interest every month
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.
Improving your score
Is it possible to raise your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. You must, of course, remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.
Know your FICO
In order to raise your FICO score, you've got to get 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, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once per year from the three major agencies at 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.
Curious about your credit score? Call us: (407) 889-4321.