How's your FICO Score?
Because we live in an automated, it's probably not that surprising that your creditworthiness comes down to a single number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building your 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 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:
- Credit History - How long have you had credit?
- Late Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Credit Inquiries - 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 can be as low as 300 and as high as 800. Higher is better. Most home buyers have a score above 620.
Your score affects your monthly payment
Credit 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
What can you do to improve your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the FICO score is formulated from your lifetime credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)
How do I find out my FICO score?
Before you can improve your credit score, you must obtain your score and ensure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, offers credit scores on its website: myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your FICO score? Give us a call: 978-422-2311.