About the FICO Credit Score
Because our society is so computer-driven, it should come as no surprise that your creditworthiness boils down to a single number.
The years of paying your various bills: your mortgage, vehicle 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.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building a 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 these methods vary from one agency to another, all of the agencies use 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 pay your bills on time?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Credit Inquiries - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most folks getting a mortgage loan score 620 or above.
Credit scores make a 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 probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my credit score?
What can you do to raise your FICO score? Unfortunately, not much. Because the score is entirely based on your lifelong credit history, it's hard to make a significant improvement in the number with quick fixes. You must remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.
Know your FICO score
Before you can improve your score, you must know your score and be sure that the reports from each agency are correct. Fair Isaac, the corporation that offered the first FICO credit score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. They also provide information and online tools that can help you improve your FICO score.
You can get a free credit report once a year from the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Armed with this info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about credit scores? Give us a call at (415) 456-7802.