FICO Credit Scores: What Do They Mean?
Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number.
This score is built by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and the like.
Each of the three credit reporting agencies has its own formula for building your credit 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, each agency uses the following to determine a credit score:
- Your Credit History - Have you had credit for years, or for just a short time?
- Late Payments - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts do you have? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most folks getting a mortgage these days score 620 or above.
FICO makes a difference in your interest rate
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.
Raising your credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.
How do I find out my FICO score?
Before you can improve your score, you have to know your score and make certain that the credit reports from each 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 along with reports from all three credit reporting agencies. They also provide helpful information and online tools that can help you improve your FICO score.
You can get a federally-mandated free credit report once a year from all three credit reporting agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about credit scores? Call us at 405-513-7700.