How's your FICO Score?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to a single number. The FICO score is built by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car loans, credit cards, and the like.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, each agency uses the following to determine a score:

• Your Credit History - How many years have you had credit?
• Payment History - Do you have a history of late payments?
• Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?
• Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.

Your credit score greatly affects your interest rate

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 there any way to improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report; this is the only "quick fix" for credit problems.

How do I find out my FICO score?

Before you can improve your credit score, you must obtain your score and ensure that the credit reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. Also available are helpful information and online 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 a year from all three agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

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

Curious about credit scores? Call us at 9254610500.