FICO - Your Credit Score
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Because our society is so automated, it should come as no surprise that your ability to repay virtually any loan boils down to one number.
Credit reporting agencies use your history of paying loans in order to create a FICO score.
Each of the three credit reporting agencies has its own formula for building your credit 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, all of the agencies use the following to build a score:
- Your Credit History - How long have you had credit?
- Late Payments - Do you have any payments later than 30 days?
- Balances on your Credit Cards - How many 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 a little bit differently depending on the formula being used. The result is one number. Credit scores range from 300 to 850. Higher scores are better. Most borrowers who want to get a mortgage have a score above 620.
Your FICO score affects how much you pay in interest every month
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Can I raise my credit 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 FICO score is formulated from your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should have incorrect items removed from your credit report.)
How do I find out my FICO score?
In order to raise your score, you must obtain the credit reports that are used to build it, and of course, you need the score itself. 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 along with reports from all three credit reporting agencies. Also available are helpful information and online tools that can help you understand how to improve your credit score.
You can get a federally-mandated free credit report every year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.
Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your FICO score? Call us at 714-939-3863.