FICO - Your Credit Score
Since our society is so automated, you're probably not surprised to hear that your ability to repay virtually any loan comes down to one number.
Credit reporting agencies use your history of paying loans to compile a FICO score.
All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO score was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; they all use the following to build your score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you have a history of late payments?
- Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
- 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. Each formula produces a single number which may vary a a little by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most people getting a mortgage loan have a score above 620.
Your FICO score affects your monthly payment
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
Is it possible to improve your FICO score? Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so you can't turn it around right away. (Of course you can and should appeal incorrect items on your credit report.)
Getting your credit score
Before you can improve your credit score, you must obtain your score and be sure that the reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. They also provide 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 per year from the three major credit reporting agencies at 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.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about your credit score? Give us a call at (415) 456-7802.