How's your FICO Score?
Since we live in a computer-driven world, it's probably not that surprising that your creditworthiness boils down to one number.
All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit agencies has its own formula for building your credit score. The original FICO model 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, all of the agencies use the following to calculate a credit score:
- Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late?
- Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
- Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary slightly by agency. FICO scores range from 300 to 800. Higher is better. Most people getting a mortgage loan in the current environment score 620 or above.
Not just for qualifying
Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Raising your credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is based on a lifetime of credit history, it is hard to make a significant change in the score with quick fixes. You should remove any incorrect reporting on your credit report; this is really the only way to quickly improve your credit score.
Know your FICO
Before you can improve your FICO score, you must get your score and ensure that the reports from each credit reporting agency are correct. 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. They also provide helpful information and online tools that can help you understand how to improve your credit score.
You can get a federally-mandated free credit report once per year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.
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 your FICO score? Call us at (334) 285-8850.