Scoring your Credit - How's your FICO?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage boils down to a single number. The FICO score is created by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.

Each of the three credit reporting 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 each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following to calculate your credit score:

• Your Credit History - How many years have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many accounts do you have? 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 assigned weights based on the formula being used. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher scores are better. Most home buyers have a score above 620.

Credit scores make a huge difference in interest rates

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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should remove incorrect data 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 corporation that invented the first FICO credit score, offers credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. Also available are 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 all three agencies by visiting 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 will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your credit score? Call us: 3038627760.