Scoring your Credit - How's your FICO?
Because we live in a computer-driven world, it's probably not that surprising that your creditworthiness comes down to a single number.
Credit reporting agencies use your loan payment history in order to compile your FICO score.
Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a 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 each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following in building your score:
- Credit History - How many years have you had credit?
- History of Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you carry? How much do you owe?
- Credit Inquiries - 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 range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.
Not just for qualifying
Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Can I improve my FICO score?
Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is calculated from your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)
How do I find out my FICO score?
Before you can improve your credit score, you must 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 reporting agencies, along with your credit report. Also available are information and tools that can help you analyze what actions might have the greatest impact on your FICO score.
You can get a federally-mandated free credit report every year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.
Now that you have all the facts, 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 credit scores? Give us a call: (302) 765-8089.
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