FICO - Your Credit Score

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage comes down to a single number. Credit reporting agencies use your history of paying all types of loans to create your FICO score.

Each of the three credit agencies has its own formula for building your 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following factors to build a credit score:

• Credit History - Have you had credit for years, or for a short time?
• Late Payments - Do you have a history of late payments?
• Balances on your Credit Cards - 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 weighted slightly differently depending on the formula being used. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers these days have a score above 620.

Credit scores make a 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 probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

How can you improve your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is formulated from your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should appeal incorrect items on your credit report.)

How do I find out my credit score?

In order to raise your score, you must get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO credit score, sells credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from the three major 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.

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

Want to know more about credit scores? Call us at 9254610500.