How's your FICO Score?
Because we live in an automated, 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, vehicle payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following in calculating a credit score:
- Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Do you pay your bills on time?
- Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
- Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?
Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. Credit scores can be as low as 300 and as high as 800. Higher is better. Most people who want to get a mortgage these days have a score above 620.
FICO makes a 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.
Improving your score
Is there any way to raise your credit score? Since the credit score is based on your lifelong credit history, it is difficult to change it quickly. You must appeal for the credit agency to remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.
Getting your FICO score
Before you can improve your score, you must know your score and make certain that the credit 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 to quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once a year from all three agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
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.
Want to know more about credit scores? Call us: 405-513-7700.