About the FICO Credit Score
Because we live in a computer-driven society, you're probably not surprised to hear that your creditworthiness comes down to a single number.
Credit reporting agencies use your history of paying loans to build your FICO score.
Equifax, TransUnion, and Experian, the three major credit agencies, each have a 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 from one agency to another, the differences aren't huge; they all use the following factors to build a credit score:
- Your Credit History - Have you had credit for years, or for a short time?
- Late Payments - Have you paid more than 30 days late, and how often?
- Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted differently depending on the formula being used. The result is one number. Credit scores range from 300 to 800. Higher is always better. Most people getting a mortgage in the current environment have a score above 620.
Your credit score greatly affects your monthly payment
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
What can you do to raise your FICO score? Unfortunately, not much. So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifelong credit history, so it's not possible to raise it significantly in the short term. You must, of course, remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.
Getting your FICO score
In order to raise your score, you must obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once per year from the three major agencies by visiting 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about credit scores? Give us a call: 978-422-2311.