FICO Credit Scores: What Do They Mean?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage comes down to just one number.
Credit reporting agencies use your payment history to compile your FICO score.
The three reporting agencies use slightly different formulas to build a credit score. The original FICO was developed by Fair Isaac and Company.
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 your credit score:
- Your Credit History - How long have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Your Credit Card Balances - How many credit card accounts do you hold, 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 assigned weights based on the formula being used. Each formula produces a single number which may vary slightly by agency. Credit scores range from 300 to 800. Higher is better. Most home buyers these days have a score above 620.
FICO makes a difference in interest rates
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Raising your FICO score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the score is entirely based on a lifetime of credit history, it is difficult to change it quickly. (Of course you must remove incorrect data on your credit report.)
How do I find out my FICO score?
Before you can improve your score, you have to obtain your score and be sure that the reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide information and tools that can help you improve your FICO score.
You can get a free credit report every year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Curious about your FICO score? Give us a call at 4357556622.