FICO - Your Credit Score
Because our world is so computer-driven, it should come as no surprise that your ability to repay virtually any loan comes down to one number.
This score is created by credit agencies. They use the payment history of all of your loans: credit cards, mortgages, car/boat 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. .
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, the differences aren't huge; they all use the following in calculating your score:
- Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts do you hold? How much do you owe?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?
Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers have a score above 620.
Your score greatly affects how much you pay in interest every month
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
How can you improve your FICO score? Because the score is entirely based on a lifetime of credit history, it's hard to change it quickly. You must, of course, remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.
Know your FICO score
Before you can improve your score, you must get your score and ensure that the credit reports from each reporting agency are correct. Fair Isaac, the company that offered the first FICO score, offers scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. They also provide information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report every year from the three major agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your credit score? Give us a call at 214-300-8756.