Scoring your Credit - How's your FICO?

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to just one number. This score is created by credit agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.

Each of the three credit agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following factors to build your score:

• Credit History - How many years have you had credit?
• Late Payments - Do you have any payments later than 30 days?
• 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 differently depending on the formula being used. Each formula produces a single number which varies slightly from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most folks getting a mortgage loan these days score 620 or above.

Not just for qualifying

Did you know? FICO 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 FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is entirely based on your lifelong credit history, it's very difficult to change it quickly. (Of course you must have incorrect items removed from your credit report.)

Know your FICO score

Before you can improve your score, you have to obtain your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. 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 per year from all three agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Give us a call at 9254610500.