FICO - Your Credit Score
Since our society is so computer-driven, you're probably not surprised to hear that your creditworthiness boils down to a single number.
The FICO score is created by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans etcetera.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following to build a credit score:
- Credit History - How long have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts do you have? 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 weighted differently depending on which formula the agency uses. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher is better. Most borrowers who want to get a mortgage loan these days score 620 or above.
Credit scores make a huge difference in your interest rate
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Raising your credit score
What can you do to improve your FICO score? Unfortunately, not much. 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.)
Know your FICO score
In order to improve your score, you've got to obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. Also available are helpful 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 all three 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.
Armed with this information, 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: (334) 285-8850.