FICO - Your Credit Score
Since we live in an automated, it should come as no surprise that your creditworthiness comes down to a single number.
This score is compiled by credit reporting agencies. They use the payment history of all of your loans: credit cards, mortgages, car loans and the like.
Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO 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 these methods vary from one agency to another, all of the agencies use the following to build a score:
- Your Credit History - How long have you had credit?
- History of Payments - Have you paid more than 30 days late, and how often?
- Your Credit Card Balances - How many accounts do you carry? How much do you owe?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?
Each of these factors is assigned a value and a weight. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher is better. Most people getting a mortgage these days have a score above 620.
Your score affects how much you pay in interest every month
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Improving your score
How can you raise your FICO score? Despite what you hear from "credit repair" companies, the score is formulated from your lifetime credit history, so you can't turn it around right away. You should appeal for the credit agency to remove any incorrect data from your credit report; this is the only "quick fix" for credit troubles.
Getting your FICO score
Before you can improve your FICO score, you must obtain your score and make certain that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that offered the first FICO credit score, sells credit 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 agencies. Also available are helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once a year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.
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.
Curious about your credit score? Call us at 703.255-5810.