FICO Credit Scores: What Do They Mean?
Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to a single number.
Credit reporting agencies use your loan payment history to build this score.
The three agencies use slightly different formulas to build a 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, all of the agencies use the following to calculate a score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you pay your bills on time?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Typical home buyers likely find their credit scores above 620.
Your credit score affects how much you pay in interest every month
Did you know? 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.
Can I raise my FICO score?
How can you 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 can and should have incorrect items removed from your credit report.)
Getting your credit score
In order to raise your 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, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. They also provide information and online tools that help you improve your FICO score.
You can get a federally-mandated free credit report once per year from the three major credit reporting agencies when you visit 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 information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about credit scores? Give us a call: 3032282254.