Scoring your Credit - How's your FICO?
It’s probably not that surprising that your creditworthiness boils down to one number. Credit reporting agencies use your loan payment history in order to build your FICO score.
Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building your credit score. Fair Isaac and Co originally 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 calculate your score:
- Credit History – Have you had credit for many years, or for just a short time?
- Late Payments – Do you have any payments later than 30 days?
- Your Credit Card Balances – How many accounts do you hold, and how much do you owe on them?
- Credit Inquiries – How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted a little bit differently depending on the formula being used. 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 borrowers who want to get a mortgage score 620 or above.
Credit scores make a huge difference in interest rates. Did you know credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
Improving your score
What can you do about your FICO score? Unfortunately, not much. Despite what you hear from “credit repair” companies, the score is formulated from your lifetime credit history, so you can’t turn it around right away. You should remove any incorrect data on your credit report, which is the only “quick fix” for credit problems.
Getting your credit score
To raise your score, you must have the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that offered the first FICO credit score, sells credit scores on its website: myFICO.com. It’s inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide 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 credit reporting agencies by visiting 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’ll be a more informed consumer and you’ll be better positioned to obtain the right mortgage for you.