About the FICO Credit Score
Because 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 are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary 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 in building your score:
- Your Credit History - How long have you had credit?
- Late Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you carry? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher is better. Most borrowers who want to get a mortgage in the current environment score 620 or above.
Not just for qualifying
FICO scores are used for more than just determining whether or not you qualify for a mortgage. 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 raise your credit score? Since the credit score is based on a lifetime of credit history, it's hard to significantly improve the number with quick fixes. You should appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.
Know your FICO score
Before you can improve your FICO score, you have to know your score and be sure that the credit reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, offers credit scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are information and tools that can 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 at 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about credit scores? Give us a call at 630-717-3600.