FICO Credit Scores: What Do They Mean?

Because we live in a computer-driven society, you're probably not surprised to hear that your creditworthiness comes down to one number. The years of paying your various bills: your mortgage, car 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.

The three reporting agencies use slightly different formulas to build a 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 factors to calculate a score:

• Your Credit History - Have you had credit for many years, or for a short time?
• History of Payments - Do you have a history of late payments?
• Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
• Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most folks who want to get a mortgage loan have a score above 620.

Your score affects how much you pay in interest every month

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Improving your score

Is there any way to raise your FICO score? Because the FICO score is based on your lifelong credit history, it's difficult to significantly improve the score with quick fixes. (Of course you must remove incorrect data on your credit report.)

How do I find out my credit score?

To improve your credit score, you've got to have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the first FICO credit score, sells credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are helpful information and tools that can help you understand how to improve your credit score.

You can get a free credit report every 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.

Now that you have all the facts, 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? Call us: 7072522700.