FICO Credit Scores: What Do They Mean?
Because our society is so automated, it should come as no surprise that your creditworthiness boils down to one number.
Credit reporting agencies use your history of paying loans to compile this score.
The three reporting agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company.
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; each agency uses the following factors to calculate your score:
- Credit History - Have you had credit for years, or for just a short time?
- Payment History - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe?
- Inquiries on Your Credit - 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 one number. FICO scores range from 300 to 800. Higher is better. Most home buyers will likely find their scores between 620 and 800.
Your credit score affects your interest rate
FICO 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 score is formulated from your lifetime credit history, so you can't turn it around right away. You must remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.
How do I find out my credit score?
Before you can improve your FICO score, you have to get your score and make certain that the reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three reporting agencies, along with your credit report. They also provide information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once per year from all three agencies when you visit 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 obtain the right mortgage for you.
Want to know more about your FICO score? Call us at 978-422-2311.
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