FICO Credit Scores: What Do They Mean?

Because we live in an automated, you're probably not surprised to hear that your ability to repay virtually any loan boils down to one number. This score is compiled by credit reporting agencies. They use the payment history from your various loans: mortgages, car loans, credit cards, and others.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, each agency uses the following to calculate a credit score:

  • Your Credit History - Have you had credit for years, or for just a short time?
  • Late Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you hold, 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 differently depending on which formula the agency uses. The result is a single number: your credit score. FICO scores range from 300 to 800. Higher scores are better. Most borrowers getting a mortgage score 620 or above.

Your FICO score affects your interest rate

Did you know? 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.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

How do I find out my FICO score?

Before you can improve your FICO score, you have to get your score and be sure that the reports from each agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, offers scores on myFICO.com. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. They also provide 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 a year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your credit score? Call us: 2146635355.