You Credit Score: How's Your FICO?
Because our world is so automated, it should come as no surprise that your creditworthiness boils down to one number. Credit reporting agencies use your history of paying loans to compile your FICO score.
The three agencies use slightly different formulas to build 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, each agency uses the following to build a score:
- Your Credit History - How long have you had credit?
- Payment History - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you have? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
These factors are weighted differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Typical home buyers probably find their scores falling above 620.
Not just for qualifying
Did you know? 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
What can you do about your FICO score? Unfortunately, not much. Because the score is based on a lifetime of credit history, it is difficult to change it quickly. (Of course you must have incorrect items removed from your credit report.)
How do I find out my credit score?
To improve your credit score, you must obtain the reports that are used to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. Also available are information and online tools that can help you improve your FICO score.
You can get a federally-mandated free credit report every year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.