Scoring your Credit - How's your FICO?

Since our world is so computer-driven, it's probably not that surprising that your ability to repay your mortgage loan comes down to a single number. This score is created by credit agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, and the like.

The three reporting agencies use slightly different formulas to build a 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, each agency uses the following to build a credit score:

  • Credit History - How many years have you had credit?
  • History of Payments - Do you pay your bills on time?
  • 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 weighted a little bit differently depending on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers will likely find their credit scores falling above 620.

Your credit score greatly affects your monthly payment

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifelong credit history, so you can't turn it around right away. (Of course you can and should have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your FICO score, you have to know your score and make sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and online tools that help you understand how to improve your credit score.

You can get a free credit report every year from all three agencies at 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 will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about your credit score? Call us at 3038627760.