FICO - Your Credit Score

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

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 these methods vary from one agency to another, all of the agencies use the following to calculate a score:

• Your Credit History - How many years have you had credit?
• Payment History - Do you pay your bills on time?
• Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
• 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. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher scores are better. Typical home buyers will likely find their scores falling above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Improving your score

What can you do to improve your FICO score? Unfortunately, not much. Since the FICO score is entirely based on your lifelong credit history, it's very hard to change it quickly. You must appeal for the credit agency to remove any incorrect reporting on your credit report; this is the only "quick fix" for credit troubles.

How do I find out my credit score?

In order to raise your credit score, you must get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the first FICO score, offers credit 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 online tools that can help you improve your credit score.

You can get a federally-mandated free credit report every year from all three credit reporting 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 info, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Give us a call: 7084035181.