FICO - Your Credit Score
Since we live in an automated, it's probably not that surprising that your creditworthiness comes down to a single number.
All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit reporting agencies has its own 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to determine a score:
- Your Credit History - How many years have you had credit?
- History of Payments - Have you paid more than 30 days late, and how often?
- Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
Each of these is assigned a value and a weight. 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 always better. Most home buyers have a score above 620.
Not just for qualifying
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)
Getting your credit score
Before you can improve your credit score, you must obtain your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells credit scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that help you improve your credit score.
You can get a federally-mandated free credit report once a year from all three credit reporting agencies at 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 information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about your credit score? Give us a call: (317) 288-9434.