Scoring your Credit - How's your FICO?
Because our world is so automated, it should come as no surprise that your ability to repay virtually any loan comes down to a single number.
Credit reporting agencies use your loan payment history in order to build this score.
Each of the three credit agencies has its own formula for building your credit score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors in calculating your credit score:
- Your Credit History - Have you had credit for many years, or for a short time?
- History of Payments - Do you pay your bills on time?
- Credit Card Balances - How many accounts? 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?
Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers probably find their scores falling above 620.
Credit scores make a huge difference in interest rates
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO score
What can you do about your FICO score? Very little in the short term. Because the FICO score is based on a lifetime of credit history, it's hard to significantly improve the number with quick fixes. You should appeal for the credit agency to remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.
Getting your credit score
Before you can improve your credit score, you have to get your score and ensure that the credit reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide helpful 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 once a year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Want to know more about credit scores? Call us at 3523694200.