FICO Credit Scores: What Do They Mean?

Since we live in a computer-driven world, you're probably not surprised to hear that your creditworthiness comes down to one number. Credit reporting agencies use your payment history in order to compile this score.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company. 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 build your credit score:

• Credit History - How long have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
• Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most borrowers getting a mortgage loan have a score above 620.

Your credit score affects your interest rate

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is based on your lifelong credit history, it's difficult to make a significant improvement in the number with quick fixes. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my credit score?

To improve your FICO score, you've got to get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO credit score, sells credit scores on myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about credit scores? Give us a call at 3217777277.