Scoring your Credit - How's your FICO?
Because we live in a computer-driven society, you're probably not surprised to hear that your creditworthiness boils down to one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. .
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 each of the models considers a range of data available in your credit report, each agency uses the following to build a score:
- Your Credit History - Have you had credit for years, or for just a short time?
- Payment History - Do you have a history of late payments?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are weighted differently depending on which formula the agency uses. 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 home buyers have a score above 620.
FICO makes a huge difference in interest rates
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.
Can I improve my FICO score?
What can you do about your FICO score? Very little in the short term. Since the FICO score is entirely based on your lifelong credit history, it is difficult to make a significant change in the score with quick fixes. You should appeal for the credit agency to remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.
Getting your credit score
To improve your credit score, you must obtain the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report once per year from the three major agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this info, 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 at (808) 935-0678.