FICO Credit Scores: What Do They Mean?
Because our society is so automated, you're probably not surprised to hear that your creditworthiness 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.
All three major credit 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 build a 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 have, and how much do you owe on them?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher scores are better. Most people who want to get a mortgage score 620 or above.
Not just for qualifying
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?
What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should remove any incorrect data on your credit report; this is the only "quick fix" for credit problems.
How do I find out my FICO score?
Before you can improve your FICO score, you must get your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. 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 federally-mandated free credit report once a year from all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.
Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your FICO score? Call us at (707) 252-2700.