How's your FICO Score?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your history of paying all types of loans to compile this score.

The three reporting agencies use slightly different formulas to build 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine your credit score:

• Your Credit History - Have you had credit for many years, or for just a short time?
• Late Payments - Have you paid more than 30 days late?
• Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher is better. Typical home buyers probably find their scores between 620 and 800.

Your credit score greatly affects your interest rate

FICO 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 have incorrect items removed from your credit report.)

Know your FICO

In order to raise your score, you must have the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with 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 every year from the three major credit reporting agencies when you visit 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 get the most favorable mortgage.

Want to know more about credit scores? Give us a call at 7084035181.