FICO Credit Scores: What Do They Mean?
Since we live in a computer-driven world, you're probably not surprised to hear that your ability to repay virtually any loan boils down to a single number.
Credit reporting agencies use your history of paying loans to build this score.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 your score:
- Your Credit History - How many years have you had credit?
- Late Payments - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. FICO scores range from 300 to 800. Higher scores are better. Most borrowers getting a mortgage 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. (Of course you must remove incorrect data on your credit report.)
Getting your credit score
Before you can improve your credit score, you must obtain your score and make sure that the credit 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, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide helpful information and online tools that can help you improve your credit score.
You can get a free credit report once a year from all three credit reporting agencies at 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 obtain the right mortgage for you.
Want to know more about your FICO score? Call us: 978-422-2311.