About the FICO Credit Score
Because our society is so automated, it should come as no surprise that your ability to repay virtually any loan boils down to one number.
Credit reporting agencies use your loan payment history to build this score.
All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to build a credit score:
- Your Credit History - How long have you had credit?
- Late 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?
- 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 results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers likely find their scores falling between 620 and 800.
Your score affects how much you pay in interest every month
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.
Raising your FICO score
How can you improve your credit score? Because 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.)
Getting your credit score
To improve your score, you must get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. Also available are information and online tools that help you improve your credit score.
You can get a free credit report once per 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 right mortgage for you.
Want to know more about credit scores? Give us a call: (972) 292-0448.