Scoring your Credit - How's your FICO?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage comes down to just one number. This score is created by credit agencies. These agencies use the payment history from your various loans: mortgages, car loans, credit cards, and others.

The three credit 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, the differences aren't huge; all of the agencies use the following factors to calculate a score:

• Your Credit History - How long have you had credit?
• History of Payments - Do you pay your bills on time?
• Balances on your Credit Cards - How many accounts do you hold? How much do you owe?
• Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is always better. Most home buyers probably find their credit scores above 620.

FICO makes a big difference in your interest rate

Did you know? FICO 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.

Can I improve my FICO score?

How can you raise your FICO score? Since the score is entirely based on a lifetime of credit history, it's very hard to significantly improve the score with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)

Know your FICO

Before you can improve your credit score, you must obtain your score and ensure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three agencies, along with your credit report. Also available are helpful information and tools that can help you understand how to improve your FICO score.

You can get a federally-mandated free credit report once a year from all three credit reporting 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: 7072522700.