About the FICO Credit Score
Since we live in an automated, it's probably not that surprising that your creditworthiness comes 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, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building 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 these methods vary, the differences aren't huge; all of the agencies use the following factors in calculating a score:
- Your Credit History - Have you had credit for years, or for a short time?
- Payment History - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are weighted a little bit differently depending on which formula the agency uses. 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 always better. Most home buyers have a score above 620.
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.
Can I raise my FICO score?
How can you raise your FICO score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should, of course, remove any incorrect data from your credit report, which is the only "quick fix" for credit troubles.
Getting your FICO score
Before you can improve your score, you have to obtain your score and ensure that the 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 along with reports from all three agencies. They also provide helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report every year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
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 your FICO score? Give us a call: (941) 366-5800.