You Credit Score: How's Your FICO?
Since our world is so automated, it should come as no surprise that your creditworthiness comes down to one number.
The FICO score is created by credit agencies. They use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, and others.
Each of the three credit reporting agencies has its own formula for building your 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; they all use the following to calculate your score:
- Credit History - How long have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts do you have, and how much do you owe on them?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are weighted slightly differently depending on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher is always better. Typical home buyers probably find their credit scores falling between 620 and 800.
Not just for qualifying
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO score
How can you improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should appeal for the credit agency to remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.
How do I find out my FICO score?
To raise your score, you've got to get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO credit score, sells scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that help you improve your FICO score.
You can get a free credit report once a year from the three major agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about credit scores? Give us a call at (207) 571-8034.