FICO Credit Scores: What Do They Mean?
Because our society is so computer-driven, it's probably not that surprising that your creditworthiness boils down to a single number.
Credit reporting agencies use your history of paying loans in order to create this score.
The three credit reporting agencies use slightly different formulas to build 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, all of the agencies use the following to calculate a score:
- Your Credit History - Have you had credit for years, or for a short time?
- Payment History - Do you pay your bills on time?
- Credit Card Balances - How many credit card 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 lending you money?
These factors are assigned weights based on the formula being used. 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 these days have a score above 620.
Not just for qualifying
Did you know? 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.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.
How do I find out my credit score?
Before you can improve your score, you must obtain your score and make certain that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, offers credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. Also available are information and online 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 by visiting 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about your FICO score? Call us at 978-422-2311.