FICO Credit Scores: What Do They Mean?

Since we live in an automated, it's probably not that surprising that your creditworthiness comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary formula for building a credit score. The original FICO model was developed by Fair Isaac and Company. 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 the formulas vary, the differences aren't huge; they all use the following factors in calculating a score:

  • Your Credit History - How long have you had credit?
  • Payment History - Have you paid more than 30 days late, and how often?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers likely find their scores falling above 620.

FICO makes a big difference in your interest rate

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.

Raising your FICO 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 hard to make a significant improvement in the score with quick fixes. (Of course you must remove incorrect data on your credit report.)

Know your FICO score

In order to raise your credit score, you must have the credit reports that the agencies use to build it, and of course, you need the score itself. 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 along with reports from all three credit reporting 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 free credit report once per year from the three major credit reporting agencies when you visit 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.

Now that you have all the facts, 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? Give us a call: 4086261879.

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