You Credit Score: How's Your FICO?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage comes down to a single number. The FICO score is created by credit reporting agencies. They use the payment history from your various loans: credit cards, mortgages, car/boat loans and the like.

TransUnion, Equifax, and Experian, the three major credit agencies, each have a proprietary formula for building your credit score. The original FICO model 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, the differences aren't huge; each agency uses the following factors in calculating a credit score:

• Your Credit History - Have you had credit for many years, or for just a short time?
• Payment History - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
• Requests for Credit - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. FICO scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

Your credit score affects your monthly payment

Did you know? 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.

Raising your FICO score

How can you raise your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is formulated from your lifelong credit history, so you can't turn it around right away. You must, of course, remove any incorrect data on your credit report; this is the only "quick fix" for credit troubles.

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 reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. They also provide helpful information and tools that help you understand how to improve your FICO score.

You can get a federally-mandated free credit report once per year from all three agencies at 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Call us at 7068605514.