FICO - Your Credit Score
Since our society is so automated, it's probably not that surprising that your creditworthiness comes down to a single number.
Credit reporting agencies use your payment history in order to compile your FICO score.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. .
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; they all use the following in building your score:
- Credit History - Have you had credit for many years, or for just a short time?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you hold? How much do you owe on your accounts?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted slightly differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO 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 greatly 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. Lenders give lower interest rates to individuals with higher scores.
Raising your FICO score
What can you do to raise your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifelong credit history, so you can't turn it around right away. (Of course you must remove incorrect data on your credit report.)
Know your FICO score
To improve your FICO score, you must get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO score, offers credit scores on myFICO.com. For a reasonable fee, you can 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 once a year from all three credit reporting agencies at 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 most favorable mortgage.
Curious about your credit score? Call us at 248-644-1200.