About the FICO Credit Score
Because we live in a computer-driven world, it should come as no surprise that your ability to repay virtually any loan boils down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, diced, 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 agencies, each have a proprietary formula for building a credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "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 factors in building your credit score:
- Credit History - How many years have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for 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 always better. Most home buyers in the current environment have a score above 620.
Your FICO score 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. Lenders give lower interest rates to individuals with higher scores.
Can I improve my credit score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must appeal incorrect items on your credit report.)
How do I find out my credit score?
In order to improve your score, you've got to have the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are helpful information and online tools that help you understand how to improve your FICO score.
You can get a free credit report once a year from all three agencies by visiting 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.
Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.