Scoring your Credit - How's your FICO?

Because we live in a computer-driven world, you're probably not surprised to hear that your ability to repay your mortgage loan comes down to a single number. The FICO score is compiled by credit agencies. These agencies use the payment history of all of your loans: mortgages, car loans, credit cards, etcetera.

Each of the three credit agencies has its own formula for building your 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 each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following in building your credit score:

• Credit History - How many years have you had credit?
• Payment History - Have you paid more than 30 days late?
• Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers have a score above 620.

FICO makes a difference in interest rates

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my credit score?

Is there any way to improve your FICO score? So called "credit repair" companies advertise quick fixes, but the score is based on your lifelong credit history, so it's not possible to raise it significantly in the short term. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report; this is really the only "quick fix" for credit troubles.

Know your FICO

In order to improve your FICO score, you must get the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that offered the first FICO credit score, offers scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you improve your credit score.

You can get a federally-mandated free credit report once a year from the three major agencies when you visit 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 your FICO score? Call us at (707) 252-2700.