How's your FICO Score?
Since we live in an automated, it should come as no surprise that your ability to repay virtually any loan boils down to one number.
The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, diced, 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. .
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, the differences aren't huge; each agency uses the following in calculating a credit score:
- Your Credit History - How many years have you had credit?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many accounts do you carry? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are weighted slightly differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers probably find their credit scores falling above 620.
FICO makes a huge 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. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.
Getting your credit score
Before you can improve your score, you must get your score and make certain that the credit reports from each reporting agency are correct. 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 as well as credit reports from all three credit reporting agencies. Also available are helpful 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 a year from all three agencies when you visit 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.
Want to know more about credit scores? Give us a call at 407-834-3377.