FICO Credit Scores: What Do They Mean?
Because we live in a computer-driven world, you’re probably not surprised to hear that your ability to repay your mortgage boils down to one number. Credit reporting agencies use your history of paying loans to create 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 each of the models considers a range of data available in your credit report, each agency uses the following to build your score:
- Credit History – How long have you had credit?
- Payment History – Do you have a history of late payments?
- Your Credit Card Balances – How many accounts? How much do you owe on your accounts?
- Requests for Credit – How many times have lenders pulled your credit for the purpose of giving you a loan?
Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers these days have a score above 620.
Not just for qualifying
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.
Can I raise my credit score?
Unfortunately, there isn’t a lot you can do to immediately improve your credit score. Because the credit score is entirely based on a lifetime of credit history, it is difficult to change it quickly. You should appeal for the credit agency to remove any incorrect data from your credit report, which is the only “quick fix” for credit problems.
How do I find out my FICO score?
Before you can improve your credit score, you have to get your score and ensure that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and tools that help you improve your FICO score.
You can get a federally-mandated free credit report once per year from all three agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to “upgrade” your report to include a credit score is very reasonable.
Now that you have all the facts, you’ll be a more informed consumer and you’ll be better positioned to obtain the most competitive mortgage.