About the FICO Credit Score
Since we live in a computer-driven world, it's probably not that surprising that your creditworthiness boils down to a single number.
All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building a 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 the formulas vary, each agency uses the following to determine your credit score:
- Your Credit History - How many years have you had credit?
- Payment History - Have you paid more than 30 days late?
- Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
- Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?
These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers in the current environment have a score above 620.
Not just for qualifying
FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.
Raising your credit score
What can you do about 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 must appeal incorrect items on your credit report.)
Getting your credit score
Before you can improve your credit score, you must know your score and ensure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells scores on its website: myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. They also provide helpful 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 agencies at 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'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.
Curious about your credit score? Give us a call: 718-441-7000.