Scoring your Credit - How's your FICO?
Because we live in a computer-driven world, it should come as no surprise that your ability to repay virtually any loan comes down to a single number.
The FICO score is created by credit reporting agencies. They use the payment history of your various loans: credit cards, mortgages, car/boat loans and the like.
The three agencies use slightly different formulas to build a credit score. The original FICO 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, all of the agencies use the following to determine your credit score:
- Your Credit History - How long have you had credit?
- Late Payments - Have you paid more than 30 days late?
- Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. 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 scores are better. Most home buyers in the current environment have a score above 620.
Your FICO score affects your monthly payment
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?
Is it possible to raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, appeal for the credit agency to remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.
How do I find out my credit score?
Before you can improve your FICO score, you must get your score and be sure that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once per year from all three credit reporting agencies by visiting 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 obtain the right mortgage for you.
Curious about credit scores? Call us: 248-644-1200.