How's your FICO Score?
Because our society is so automated, it should come as no surprise that your creditworthiness boils down to one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
The three agencies use slightly different formulas to build a credit score. The original FICO score 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 these methods vary, all of the agencies use the following to calculate your credit score:
- Credit History - How many years have you had credit?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- 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 result is one number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will probably find their scores falling above 620.
Your credit 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.
Improving your score
What can you do about your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the FICO score is based on your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you must appeal incorrect items on your credit report.)
How do I find out my FICO score?
In order to raise your credit score, you've got to 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 credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report every year from all three credit reporting 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.
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.
Want to know more about credit scores? Give us a call: (303) 228-2254.