About the FICO Credit Score
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Since we live in an automated, it's probably not that surprising that your ability to repay virtually any loan comes down to one number. The FICO score is compiled by credit reporting agencies. They use the payment history of your various loans: mortgages, car loans, credit cards, et cetera.
Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building your 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 the formulas vary from one agency to another, the differences aren't huge; each agency uses the following in building a credit score:
- Credit History - How many years have you had credit?
- History of Payments - Do you have any payments later than 30 days?
- Credit Card Balances - How many accounts? How much do you owe on your accounts?
- Credit Inquiries - How many times have you had your credit checked for a loan?
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 is better. Most people getting a mortgage score 620 or above.
Your credit score greatly affects your monthly payment
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Raising your credit score
Is it possible to improve your FICO score? Because the credit score is based on a lifetime of credit history, it's difficult to change it quickly. You must remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.
Know your FICO score
To improve your score, you must obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are helpful information and tools that help you improve your FICO score.
You can get a federally-mandated free credit report once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and 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 credit scores? Give us a call at (920) 674-5542.