FICO Credit Scores: What Do They Mean?
Because we live in an automated, you're probably not surprised to hear that your creditworthiness comes down to one number.
The years of paying your various bills: your mortgage, vehicle 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.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building a 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, each agency uses the following to determine your score:
- Your Credit History - Have you had credit for many years, or for a short time?
- History of Payments - Have you paid more than 30 days late, and how often?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted slightly differently depending on which formula the agency uses. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers probably find their scores between 620 and 800.
Not just for qualifying
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
How can you improve your credit score? Because the score is based on a lifetime of credit history, it's difficult to make a significant change in the score with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)
How do I find out my FICO score?
In order to improve your credit score, you've got to obtain the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide helpful information and tools that 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 the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.
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.
Want to know more about credit scores? Give us a call at 3038627760.