FICO Credit Scores: What Do They Mean?
Since our society is so computer-driven, it should come as no surprise that your ability to repay virtually any loan comes down to a single number.
Credit reporting agencies use your loan payment history in order to compile a 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 the formulas vary from one agency to another, each agency uses the following to calculate a credit score:
- Your Credit History - Have you had credit for years, or for just a short time?
- History of Payments - Do you have a history of late payments?
- Your Credit Card Balances - How many accounts? How much do you owe?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most people who want to get a mortgage these days have a score above 620.
Your credit score greatly affects your monthly payment
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.
Improving your score
Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is based on your lifelong credit history, so it's not possible to raise it significantly in the short term. You must, of course, remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.
Know your FICO score
In order to raise your score, you must have the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that offered the original FICO score, sells credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. They also provide information and online tools that help you understand how to improve your credit score.
You can get a federally-mandated free credit report once per year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.
Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about credit scores? Give us a call: 3149139678.