FICO Credit Scores: What Do They Mean?

Since our society is so automated, it should come as no surprise that your creditworthiness boils down to a single number. Credit reporting agencies use your loan payment history to create this score.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. Fair Isaac and Cooriginally developed this score. . Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following factors to build your credit score:

• 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?
• 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 results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

Your credit score greatly affects your interest rate

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.

Can I raise 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 based on your lifetime credit history, so it's not possible to raise it significantly in the short term. You should appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit problems.

Know your FICO

Before you can improve your credit score, you must obtain your score and make certain that the credit reports from each 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. They also provide helpful 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 per year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

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 credit scores? Give us a call: 3149139678.