You Credit Score- How's Your FICO?
Because we live in a computer-driven society, it should come as no surprise that your creditworthiness comes down to a single number.
This score is built by credit reporting agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car loans and others.
TransUnion, Equifax, and Experian, the three major credit 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 the formulas vary from one agency to another, the differences aren't huge; they all use the following to calculate your credit score:
- Your Credit History - How long have you had credit?
- Payment History - 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?
Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers in the current environment have a score above 620.
Your credit score affects your interest rate
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
What can you do about your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. You should, of course, remove any incorrect reporting on your credit report; this is really the only way to quickly improve your credit score.
How do I find out my FICO score?
In order to raise your score, you've got to obtain the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the first FICO credit score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting 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 free credit report once per year from all three credit reporting agencies by visiting 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 obtain the right mortgage for you.
Curious about your credit score? Call us: 610-565-3600.