FICO Credit Scores: What Do They Mean?
Because our society is so computer-driven, it's probably not that surprising that your creditworthiness boils down to one number.
All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three credit reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. .
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, each agency uses the following to build a score:
- Your Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Credit Card Balances - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers have a score above 620.
FICO makes a difference in your interest rate
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.
Can I raise my FICO score?
How can you improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.
Getting your credit score
In order to improve your FICO score, you must have the reports that are used to build it, and of course, you need the score itself. 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 along with credit reports from all three reporting agencies. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from all three agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this info, you'll 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? Give us a call at 9043423622.