How's your FICO Score?
Because we live in a computer-driven society, you're probably not surprised to hear that your ability to repay virtually any loan boils down to one number.
The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, each agency uses the following to calculate your credit score:
- Credit History - How many years have you had credit?
- Payment History - Do you pay your bills on time?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most borrowers who want to get a mortgage these days have a score above 620.
Not just for qualifying
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 credit score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is based on your lifetime credit history, so you can't turn it around right away. You must, of course, appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.
Know your FICO
In order to raise your FICO score, you must get the 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. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide information and online tools that can help you understand how to improve your FICO score.
You can get a free credit report every year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Want to know more about credit scores? Give us a call at (337) 494-5626.