FICO Credit Scores: What Do They Mean?

Since our world is so automated, it should come as no surprise that your creditworthiness boils down to a single number. This score is built by credit reporting agencies. They use the payment history of your various loans: mortgages, car loans, credit cards, etcetera.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building your 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 to calculate your score:

• Your Credit History - Have you had credit for years, or for a short time?
• Payment History - Do you have any payments later than 30 days?
• Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher scores are better. Typical home buyers likely find their credit scores above 620.

Credit scores make a difference in 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.

Raising your FICO score

What can you do about your FICO score? Unfortunately, not much. Since the score is entirely based on a lifetime of credit history, it is hard to change it quickly. You must, of course, appeal for the credit agency to remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your score, you have to get your score and make certain that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. Also available are helpful 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 once per year from the three major agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Give us a call at 2817780805.