You Credit Score: How's Your FICO?
Since our world is so computer-driven, it should come as no surprise that your ability to repay virtually any loan boils down to a single number.
The FICO score is created by credit agencies. They use the payment history of your various loans: credit cards, mortgages, car loans and the like.
Each of the three credit agencies has its own formula for building your credit 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 these methods vary from one agency to another, each agency uses the following to determine your score:
- Your Credit History - Have you had credit for many years, or for just a short time?
- Late Payments - Have you paid more than 30 days late, and how often?
- Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
- 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 results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most people getting a mortgage these days score 620 or above.
FICO makes a huge difference in interest rates
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.
Improving your score
Is there any way to improve your FICO score? Since the score is based on a lifetime of credit history, it's hard to change it quickly. (Of course you can and should have incorrect items removed from your credit report.)
Getting your credit score
To raise your FICO score, you must get the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO score, offers scores on myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. They also provide information and online tools that help you understand how to improve your credit score.
You can get a federally-mandated free credit report every year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.
Now that you have all the facts, 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: 720-598-8300.