FICO Credit Scores: What Do They Mean?

Because we live in an automated, it's probably not that surprising that your creditworthiness boils down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, all of the agencies use the following to determine a score:

  • Credit History - How many years have you had credit?
  • History of Payments - Have you paid more than 30 days late?
  • Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers will likely find their credit scores above 620.

FICO makes a big difference in interest rates

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.

Raising your credit score

What can you do to raise your FICO score? Unfortunately, not much. Because the credit score is based on your lifelong credit history, it's very hard to significantly improve the score with quick fixes. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

To raise your credit score, you've got to obtain the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO credit score, offers scores on its website: myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. Also available are information and tools that help you analyze what actions might have the greatest impact on your FICO 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 credit 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 obtain the right mortgage for you.

Want to know more about credit scores? Call us: 877-310-6200.

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