You Credit Score: How's Your FICO?
Because we live in a computer-driven world, you're probably not surprised to hear that your creditworthiness comes down to a single number.
This score is created by credit reporting agencies. They use the payment history from your various loans: credit cards, mortgages, car loans etcetera.
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, each agency uses the following to determine a credit score:
- Your Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Credit Card Balances - How many accounts do you have, and how much do you owe on them?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher is always better. Typical home buyers will likely find their scores above 620.
Your FICO 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.
Raising your credit score
How can you raise your FICO score? Since the FICO score is entirely based on your lifelong credit history, it's very difficult to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)
How do I find out my credit score?
Before you can improve your FICO score, you must get your score and make sure that the reports from each credit reporting agency are correct. 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 along with reports from all three agencies. Also available are helpful information and online tools that can help you improve your credit score.
You can get a free credit report once per year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast 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 (321) 777-7277.