About the FICO Credit Score
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Since we live in a computer-driven world, it should come as no surprise that your creditworthiness comes down to one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO was developed by F air I saac and Co mpany. 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 in calculating your score:
- Your Credit History - How long have you had credit?
- Payment History - Do you have a history of late payments?
- Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
- Requests for Credit - How many times have you had your credit checked for 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 range from 300 to 800. Higher scores are better. Most people who want to get a mortgage loan these days have a score above 620.
Your score affects your monthly payment
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.
Raising your FICO score
What can you do to raise your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)
How do I find out my FICO score?
Before you can improve your credit score, you have to get your score and make sure that the reports from each agency are correct. Fair Isaac, the company that offered the first FICO score, offers scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. Also available are information and tools that help you improve your credit score.
You can get a free credit report every year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.
Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.
Curious about credit scores? Call us at (808) 935-0678.