About the FICO Credit Score
Because we live in an automated, it should come as no surprise that your creditworthiness boils down to one number.
Credit reporting agencies use your loan payment history to compile a FICO score.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building your credit score. The original FICO model was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; all of the agencies use the following factors to calculate your credit score:
- Credit History - How long have you had credit?
- History of Payments - Do you have a history of late payments?
- Credit Card Balances - How many accounts do you have, and how much do you owe?
- Inquiries on Your 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. FICO scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.
Your score greatly affects your monthly payment
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Improving your score
Is it possible to raise your credit score? Despite what you hear from "credit repair" companies, the score is based on your lifelong credit history, so you can't turn it around right away. (Of course you can and should appeal incorrect items on your credit report.)
Getting your FICO score
In order to raise your FICO score, you must have the reports that the agencies use 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 along with credit reports from all three reporting agencies. Also available are helpful information and online tools that help you improve your credit score.
You can get a federally-mandated free credit report every year from the three major credit reporting agencies at 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 most favorable mortgage.
Want to know more about your credit score? Call us at (440) 234-9660.