How's your FICO Score?

Since we live in a computer-driven society, you're probably not surprised to hear that your creditworthiness comes down to one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO score 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 the formulas vary, each agency uses the following to calculate your score:

• Credit History - Have you had credit for years, or for a short time?
• 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?
• 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 one number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers have a score above 620.

Credit scores make a huge difference in interest rates

Did you know? 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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you must remove incorrect data on your credit report.)

Getting your FICO score

To improve your credit score, you must get the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. Also available are helpful information and online tools that 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 all three agencies by visiting AnnualCreditReport.com. These reports do not include a free 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 right mortgage for you.

Want to know more about credit scores? Give us a call at 7068605514.