FICO Credit Scores: What Do They Mean?
Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number.
Credit reporting agencies use your payment history to compile a FICO score.
The three credit reporting 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, the differences aren't huge; all of the agencies use the following factors in building your credit score:
- Your Credit History - How many years have you had credit?
- Late Payments - Do you have a history of late payments?
- Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?
Each of these is assigned a value and a weight. 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 is better. Most home buyers have a score above 620.
Your credit score greatly 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 a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my credit score?
What can you do to improve your FICO score? Very little in the short term. Since the score is entirely based on your lifelong credit history, it is hard to change it quickly. (Of course you must appeal incorrect items on your credit report.)
Getting your FICO score
Before you can improve your FICO score, you have to obtain your score and ensure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented 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 analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report every year from the three major agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.
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 your FICO score? Call us at 9094671090.