FICO Credit Scores: What Do They Mean?
Since we live in a computer-driven society, it's probably not that surprising that your creditworthiness comes down to one number.
Credit reporting agencies use your loan payment history to create this score.
Each of the three credit reporting agencies has its own 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, all of the agencies use the following to calculate a credit score:
- Credit History - Have you had credit for many years, or for just a short time?
- Payment History - Do you pay your bills on time?
- Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe?
- Requests for Credit - 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. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most people getting a mortgage have a score above 620.
FICO makes a difference in interest rates
Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO score
Is it possible to raise your credit score? Since the credit score is based on your lifelong credit history, it's difficult to significantly improve the number with quick fixes. You must appeal for the credit agency to remove any incorrect reporting on your credit report; this is really the only way to quickly improve your credit score.
Getting your FICO score
Before you can improve your FICO score, you have to get your score and make sure that the 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 score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you understand how to improve your FICO score.
You can get a free credit report once a year from all three agencies at 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 right mortgage for you.
Want to know more about your FICO score? Call us: 3103737406.