You Credit Score: How's Your FICO?
Since we live in an automated, it should come as no surprise that your creditworthiness comes down to one number.
The FICO score is built by credit reporting agencies. They use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.
All three credit 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 the formulas vary from one agency to another, each agency uses the following to build your credit score:
- Credit History - Have you had credit for years, or for a short time?
- Late Payments - Do you pay your bills on time?
- Credit Card Balances - How many accounts do you have, and how much do you owe on them?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher scores are better. Most home buyers in the current environment have a score above 620.
Credit scores make a big difference in interest rates
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.
Can I raise my FICO score?
What can you do about your FICO score? Unfortunately, not much. Since the FICO score is entirely based on your lifelong credit history, it's difficult to make a significant improvement in the number with quick fixes. You must appeal for the credit agency to remove any incorrect data from your credit report; this is really the only "quick fix" for credit problems.
How do I find out my credit score?
Before you can improve your score, you must get your score and make sure that the credit reports from each reporting agency are correct. 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 as well as reports from all three credit reporting agencies. They also provide information and tools that can help you improve your credit score.
You can get a free credit report every year from the three major 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.
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.
Want to know more about credit scores? Call us at 305-967-7200.