About the FICO Credit Score
Since we live in an automated, you're probably not surprised to hear that your creditworthiness comes down to one number.
Credit reporting agencies use your history of paying loans to create this score.
Each of the three credit reporting agencies has its own formula for building your 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 the formulas vary, all of the agencies use the following to build your credit score:
- Credit History - How many years have you had credit?
- Late Payments - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
Each of these is assigned a value and a weight. The result is a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most folks getting a mortgage loan these days score 620 or above.
Your credit score affects your monthly payment
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Improving your score
What can you do to raise your FICO score? Very little in the short term. Because the score is based on a lifetime of credit history, it is hard to significantly improve the score with quick fixes. You must appeal for the credit agency to remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.
How do I find out my credit score?
Before you can improve your credit score, you must know your score and make sure that the reports from each reporting agency are correct. Fair Isaac, the company that invented 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 tools that help you understand how to improve your FICO score.
You can get a free credit report every year from the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about credit scores? Give us a call at 561-395-4264.