FICO - Your Credit Score

Since we live in a computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to one number. The FICO score is compiled by credit agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans etcetera.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO 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 from one agency to another, all of the agencies use the following to build your score:

• Credit History - How long have you had credit?
• Late Payments - Do you pay your bills on time?
• Credit Card Balances - How many accounts do you hold, and how much do you owe?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher is always better. Typical home buyers will likely find their scores above 620.

Your score affects how much you pay in interest every month

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

How can you improve your FICO score? Because the credit score is entirely based on a lifetime of credit history, it's difficult to make a significant improvement in the score with quick fixes. You should remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

Before you can improve your credit score, you must obtain your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered 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. They also provide helpful information and online tools that help you improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies when you visit 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.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your FICO score? Call us: (707) 252-2700.