How's your FICO Score?
Because we live in an automated, you're probably not surprised to hear that your creditworthiness boils down to one number.
Credit reporting agencies use your payment history in order to build a FICO score.
Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building 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; all of the agencies use the following factors to calculate your credit score:
- Your Credit History - Have you had credit for years, or for a short time?
- Payment History - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts do you have, and how much do you owe?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?
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. Most home buyers in the current environment have a score above 620.
Your credit score affects how much you pay in interest every month
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
How can you raise your FICO score? Since the score is entirely based on your lifelong credit history, it's very hard to make a significant improvement in the number with quick fixes. You must, of course, remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.
Know your FICO
Before you can improve your credit score, you have to know your score and be sure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the first FICO score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide information and online tools that help you understand how to improve your FICO score.
You can get a free credit report once per year from the three major agencies when you visit 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 get the right mortgage for you.
Want to know more about your credit score? Give us a call: (478) 746-2063.