Scoring your Credit - How's your FICO?
Because our society is so automated, you're probably not surprised to hear that your creditworthiness boils down to a single number.
Credit reporting agencies use your history of paying all types of loans to build your FICO score.
Each of the three credit 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, all of the agencies use the following to calculate a score:
- Your Credit History - How long have you had credit?
- Payment History - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Most home buyers probably find their FICO scores falling between 620 and 800.
Credit scores make a huge difference in interest rates
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Improving your score
What can you do about your FICO score? Very little in the short term. Because the FICO score is entirely based on your lifelong credit history, it is hard to change it quickly. You must appeal for the credit agency to remove any incorrect data on your credit report; this is really the only "quick fix" for credit troubles.
Know your FICO score
Before you can improve your credit score, you have to get your score and be sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. Also available are 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 every year from the three major agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
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: 630-717-3600.