Scoring your Credit - How's your FICO?

Since we live in an automated, it's probably not that surprising that your ability to repay virtually any loan comes down to one number. All the years you've been paying your various bills: your mortgage, car 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. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following factors to build a credit score:

• Credit History - Have you had credit for many years, or for just a short time?
• Late Payments - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
• Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. Credit scores range from 300 to 800. Higher is better. Most people getting a mortgage in the current environment score 620 or above.

Not just for qualifying

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

What can you do to improve your FICO score? Very little in the short term. Because the score is entirely based on a lifetime of credit history, it is hard to change it quickly. You must remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.

How do I find out my credit score?

In order to raise your credit score, you've got to have the credit reports that the agencies use to build it, and of course, you need the score itself. 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 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 the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Give us a call at 7072522700.