About the FICO Credit Score
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Since we live in a computer-driven society, it should come as no surprise that your creditworthiness boils down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, the differences aren't huge; all of the agencies use the following factors to build a score:
- Your Credit History - Have you had credit for years, or for a short time?
- Payment History - Do you have a history of late payments?
- Credit Card Balances - How many accounts do you have, and how much do you owe on them?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?
Each of these is assigned a value and a weight. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher is better. Most folks getting a mortgage loan have a score above 620.
Your FICO 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 a better credit risk, and thus may qualify for a better mortgage rate.
Can I raise my credit score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the FICO score is entirely based on a lifetime of credit history, it is difficult to change it quickly. You should appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.
Know your FICO
In order to raise your score, you must get the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO credit score, sells FICO scores on myFICO.com. It's inexpensive to quickly get your FICO from all three 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 per year from all three credit reporting agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.
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.
Curious about your FICO score? Give us a call: 513-403-6260.