You Credit Score: How's Your FICO?
Since we live in an automated, it's probably not that surprising that your creditworthiness boils down to one number.
This score is compiled by credit agencies. These agencies use the payment history from your various loans: mortgages, car loans, credit cards, and others.
Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. The original FICO was developed by Fair Isaac and Company.
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; each agency uses the following factors in calculating your score:
- Credit History - How long have you had credit?
- Late Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?
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 is better. Most home buyers will likely find their credit scores between 620 and 800.
Credit scores make a difference in your interest rate
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.
Can I raise my credit 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 FICO score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.
Know your FICO score
To improve your credit score, you've got to get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you improve your credit score.
You can get a federally-mandated free credit report once a 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about your credit score? Give us a call: (904) 342-3622.