About the FICO Credit Score
Since our world is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan comes down to one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three agencies use slightly different formulas to build a credit score. The original FICO 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 build your credit score:
- Your Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?
Each of these is assigned a value and a weight. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most folks getting a mortgage have a score above 620.
Your FICO score greatly affects your monthly payment
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you must remove incorrect data on your credit report.)
How do I find out my credit score?
Before you can improve your FICO score, you have to get your score and be sure that the reports from each agency are correct. Fair Isaac, the company that invented the first FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. They also provide helpful information and online tools that 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 score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about your FICO score? Call us at (207) 571-8034.