Scoring your Credit - How's your FICO?

Because our world is so automated, you're probably not surprised to hear that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your payment history in order to create a FICO score.

Each of the three credit agencies has its own formula for building your 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, the differences aren't huge; each agency uses the following factors to build a score:

• Credit History - How many years have you had credit?
• Late Payments - Do you have a history of late payments?
• Credit Card Balances - How many accounts? How much do you owe on your accounts?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers will likely find their scores above 620.

FICO makes a big difference in interest rates

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

What can you do to raise your FICO score? Very little in the short term. Since the FICO score is based on your lifelong credit history, it is difficult to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)

Getting your credit score

To raise your credit 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 offered the first FICO score, offers credit scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. 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 the three major credit reporting agencies when you visit 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.

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.

Want to know more about credit scores? Call us: 7084035181.