How's your FICO Score?
Since we live in a computer-driven society, it's probably not that surprising that your ability to repay virtually any loan boils down to one number.
Credit reporting agencies use your history of paying loans to build this score.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO score 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following in calculating a score:
- Your Credit History - How long have you had credit?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
- 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 a single number: your FICO score. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers probably find their FICO scores falling above 620.
Your FICO score affects how much you pay in interest every month
Did you know? FICO 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.
Can I raise my FICO score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is built on your lifetime credit history, so you can't turn it around right away. You must, of course, remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.
Know your FICO score
To raise your score, you must have the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO 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 it is fast and very inexpensive.
Now that you have all the facts, you will 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 (512) 335-7800.