How's your FICO Score?
Because our world is so automated, it's probably not that surprising that your creditworthiness comes down to a single number.
The FICO score is compiled by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.
The three credit reporting agencies use slightly different formulas to build 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 from one agency to another, each agency uses the following to determine your score:
- Credit History - Have you had credit for years, or for just a short time?
- Late Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
- Inquiries on Your Credit - How many times have lenders pulled your credit 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 range from 300 to 800. Higher is always better. Most home buyers probably find their credit scores falling above 620.
Not just for qualifying
Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the credit score is based on your lifelong credit history, it is difficult to change it quickly. You must, of course, remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.
How do I find out my credit score?
Before you can improve your score, you must know your score and make certain that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. Also available are information and online tools that can help you understand how to improve your credit score.
You can get a free credit report once a year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about your FICO score? Call us at (602) 332-9544.