Scoring your Credit - How's your FICO?
Because we live in a computer-driven society, it's probably not that surprising 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 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 agencies has its own formula for building your credit score. The original FICO was developed by Fair Isaac and Company.
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, the differences aren't huge; all of the agencies use the following factors to build your credit score:
- Credit History - Have you had credit for years, or for a short time?
- Late Payments - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
- Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?
These factors are weighted slightly differently depending on which formula the agency uses. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most people getting a mortgage these days have a score above 620.
FICO makes a difference in interest rates
Did you know? 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.
Can I improve my FICO 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 formulated from your lifetime credit history, so you can't turn it around right away. You should remove any incorrect reporting on your credit report, which is the only "quick fix" for credit problems.
Know your FICO score
Before you can improve your score, you must obtain your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the company that invented the first FICO credit score, offers scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. Also available are helpful information and 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 the three major credit reporting agencies when you visit 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.
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? Call us at (513) 713-1515.