How's your FICO Score?
Since we live in a computer-driven world, it's probably not that surprising that your creditworthiness boils down to a single number.
Credit reporting agencies use your loan payment history to create this score.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own 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 the formulas vary, the differences aren't huge; all of the agencies use the following in calculating a score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are weighted slightly differently depending on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher is better. Most people getting a mortgage loan these days have a score above 620.
Your score greatly 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
What can you do to improve your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.
How do I find out my FICO score?
Before you can improve your credit score, you have to get your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the company that offered the first FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide information and tools that help you analyze what actions might have the greatest impact on your FICO score.
You can get a free credit report once per year from the three major 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.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about credit scores? Give us a call: (281) 778-0805.