FICO Credit Scores: What Do They Mean?
Since we live in a computer-driven society, it should come as no surprise that your ability to repay virtually any loan comes down to one number.
The FICO score is built by credit reporting agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and others.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company.
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, the differences aren't huge; each agency uses the following to build a credit 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 credit card accounts do you have, and how much do you owe?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most folks getting a mortgage loan these days score 620 or above.
FICO makes a huge difference in your interest rate
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I raise my FICO score?
Is there any way to raise 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.)
Know your FICO score
Before you can improve your score, you have to obtain your score and make sure that the reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. They also provide information and online tools that help you improve your FICO score.
You can get a free credit report once a year from the three major agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this info, 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 credit scores? Call us: 561-395-4264.