FICO - Your Credit Score
Because our society is so automated, it's probably not that surprising that your creditworthiness boils down to a single number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO 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 the formulas vary, all of the agencies use the following to determine a score:
- Your Credit History - Have you had credit for years, or for a short time?
- History of Payments - Have you paid more than 30 days late?
- Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?
Each of these is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. 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 credit score greatly affects your interest rate
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
Is it possible to improve your credit score? Since the credit score is based on your lifelong credit history, it's very difficult to change it quickly. You should appeal for the credit agency to remove any incorrect data from your credit report; this is the only "quick fix" for credit problems.
Know your FICO score
Before you can improve your score, you must obtain your score and make sure that the credit reports from each agency are correct. Fair Isaac, the company that offered the first FICO score, sells credit scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. Also available are information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once per year from the three major 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 get the most favorable mortgage.
Curious about credit scores? Call us: (610) 889-7467.