FICO Credit Scores: What Do They Mean?
Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number.
Credit reporting agencies use your payment history to create a FICO score.
All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. .
While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors in calculating your credit score:
- Credit History - Have you had credit for many years, or for just a short time?
- Payment History - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers will probably find their FICO scores falling above 620.
Not just for qualifying
Did you know? Credit 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
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the FICO score is entirely based on a lifetime of credit history, it's very difficult to change it quickly. You should appeal for the credit agency to remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.
Know your FICO score
In order to improve your FICO score, you must get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO credit score, sells FICO scores on myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and tools that help you understand how to improve your FICO score.
You can get a free credit report once per year from the three major agencies by visiting 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.
Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.
Want to know more about your FICO score? Give us a call at 7072522700.