How's your FICO Score?
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Because our world is so computer-driven, it should come as no surprise that your creditworthiness comes down to one number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Each of the three credit agencies has its own formula for building your 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following factors in calculating a score:
- Credit History - How long have you had credit?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
- Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are assigned weights based on the formula being used. 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 probably find their FICO scores above 620.
Your credit score greatly affects your interest rate
FICO 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.
Raising your credit score
Is there any way to raise your FICO score? Despite what you hear from "credit repair" companies, the FICO score is built on your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)
How do I find out my FICO score?
Before you can improve your credit score, you have to get your score and make sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that can 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 all three credit reporting agencies at 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.
Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Curious about your FICO score? Give us a call at (630) 305-9207.