About the FICO Credit Score
Because our society is so computer-driven, it's probably not that surprising that your creditworthiness boils down to a single number.
This score is compiled by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and others.
The three credit reporting agencies use slightly different formulas to build a 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 the formulas vary from one agency to another, the differences aren't huge; each agency uses the following factors to calculate a score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you have a history of late payments?
- Your 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?
Each of these is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most borrowers who want to get a mortgage these days score 620 or above.
Your score affects how much you pay in interest every month
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.
Raising your FICO score
What can you do about your FICO score? Unfortunately, not much. Because the credit score is entirely based on your lifelong credit history, it's difficult to make a significant change in the score with quick fixes. You should, of course, remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.
Know your FICO score
In order to improve your score, you've got to get the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO score, offers scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. Also available are information and online tools that help you improve your FICO score.
You can get a free credit report once per year from the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about your credit score? Call us: 703.255-5810.