FICO Credit Scores: What Do They Mean?

Because we live in a computer-driven society, it should come as no surprise that your creditworthiness boils down to a single number. The FICO score is created by credit agencies. They use the payment history from your various loans: credit cards, mortgages, car loans etcetera.

The three reporting agencies use slightly different formulas to build 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 these methods vary, each agency uses the following to build your credit score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which varies slightly from one agency to another. Credit scores range from 300 to 800. Higher is always better. Most home buyers will probably find their FICO scores above 620.

Credit scores make a big difference in your interest rate

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my FICO score?

How can you raise your FICO score? Because the FICO score is entirely based on your lifelong credit history, it is difficult to change it quickly. You should appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

In order to raise your credit score, you've got to have the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO credit score, offers FICO scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and tools that can help you improve your credit score.

You can get a free credit report every year from all three agencies by visiting 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.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Call us at (860) 928-6600.