You Credit Score: How's Your FICO?
Because we live in a computer-driven world, it's probably not that surprising that your ability to repay virtually any loan comes down to one number.
The FICO score is created by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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 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:
- Credit History - How long have you had credit?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
- Credit Inquiries - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Most people getting a mortgage loan in the current environment have a score above 620.
Credit scores make a big difference in interest rates
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
Is it possible to 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 appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.
Know your FICO score
In order to improve your FICO score, you must get the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO score, sells credit scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. They also provide information and online tools that help you understand how to improve your credit score.
You can get a 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 credit score? Give us a call: 7862626486.