About the FICO Credit Score
Because our world is so computer-driven, it's probably not that surprising that your creditworthiness boils down to a single number.
The FICO score is compiled by credit reporting agencies. They use the payment history of all of your loans: credit cards, mortgages, car/boat loans and others.
Each of the three credit 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 calculate your credit score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you pay your bills on time?
- 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 giving you a loan?
These factors are weighted a little bit differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly by agency. FICO scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.
Your credit 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. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my credit score?
What can you do about your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. You must, of course, remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.
Know your FICO
Before you can improve your score, you must obtain your score and ensure that the credit reports from each reporting 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 as well as 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 credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free 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 your credit score? Call us at 818-889-7300.