About the FICO Credit Score
Since our society is so computer-driven, it should come as no surprise that your creditworthiness comes down to a single number.
Credit reporting agencies use your payment history to compile this score.
Each of the three credit 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, the differences aren't huge; each agency uses the following to build a credit score:
- Credit History - Have you had credit for years, or for a short time?
- Late Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts? How much do you owe?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?
These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher is better. Most home buyers these days have a score above 620.
Credit scores make a big difference in interest rates
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.
Improving your score
What can you do to improve your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is based on your lifelong credit history, so you can't turn it around right away. (Of course you can and should appeal incorrect items on your credit report.)
Getting your credit score
To raise your credit score, you've got to obtain the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO credit score, sells FICO scores on myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you understand how to improve your credit score.
You can get a federally-mandated free credit report every year from all three credit reporting 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.
Want to know more about credit scores? Give us a call at (718) 477-4405.