About the FICO Credit Score
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Because we live in a computer-driven world, it should come as no surprise that your creditworthiness boils down to a single number.
The FICO score is compiled by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car loans, credit cards, et cetera.
TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building 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 the formulas vary from one agency to another, each agency uses the following to calculate a score:
- Your Credit History - Have you had credit for many years, or for just a short time?
- History of Payments - Do you pay your bills on time?
- 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 lenders pulled your credit for the purpose of lending you money?
These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher is always better. Typical home buyers will probably find their scores falling between 620 and 800.
Not just for qualifying
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.
Raising your credit score
What can you do to raise your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you must remove incorrect data on your credit report.)
Getting your credit score
In order to raise your score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO credit score, offers scores on myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. Also available are information and tools that 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 credit reporting 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 info, 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 at 877-696-4687.