FICO - Your Credit Score

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage comes down to just one number. This score is compiled by credit 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. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, each agency uses the following to build a score:

• Your Credit History - How many years have you had credit?
• Late Payments - Have you paid more than 30 days late?
• Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
• Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which may vary a a little from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is better. Most people getting a mortgage these days have a score above 620.

Your FICO score greatly affects your monthly payment

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

Is there any way to improve your credit score? Because the FICO score is based on your lifelong credit history, it's very hard to significantly improve the number with quick fixes. (Of course you must appeal incorrect items on your credit report.)

Know your FICO score

Before you can improve your FICO score, you must know your score and make certain that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are helpful information and tools that help you improve your FICO score.

You can get a federally-mandated free credit report once a year from the three major credit reporting 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.

Armed with this info, 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: (707) 252-2700.