You Credit Score: How's Your FICO?
Since our world is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan boils down to a single number.
All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
TransUnion, Equifax, and Experian, the three major credit agencies, each have a 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, all of the agencies use the following to determine your credit score:
- Your Credit History - How many years have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Requests for Credit - 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. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers these days have a score above 620.
Not just for qualifying
Did you know? Credit 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
How can you raise your credit score? Because the FICO score is based on a lifetime of credit history, it's very hard to change it quickly. You should appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.
Know your FICO score
To raise your score, you must obtain the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO score, offers credit scores on myFICO.com. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. They also provide information and tools that help you understand how to improve your FICO score.
You can get a federally-mandated free credit report once a 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about credit scores? Give us a call: 3217777277.