FICO Credit Scores: What Do They Mean?
Because we live in an automated, it should come as no surprise that your creditworthiness comes down to one number.
Credit reporting agencies use your history of paying all types of loans to create this score.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary formula for building your credit score. Fair Isaac and Cooriginally developed this score. .
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 these methods vary from one agency to another, each agency uses the following to build your credit score:
- Your Credit History - How many years have you had credit?
- Late Payments - Do you pay your bills on time?
- Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?
These factors are assigned weights based on the formula being used. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.
Not just for qualifying
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.
Raising your credit score
What can you do to improve your FICO score? Unfortunately, not much. Since the credit score is based on a lifetime of credit history, it is hard to make a significant improvement in the score with quick fixes. You must, of course, remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.
Know your FICO score
To improve your score, you've got to have the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are information and online tools that help you understand how to improve your credit score.
You can get a federally-mandated free credit report every year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this information, you will 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 at 4086261879.