How's your FICO Score?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. This score is compiled by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit 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, the differences aren't huge; each agency uses the following to build a credit score:

• Credit History - How long have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Your Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

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

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

Know your FICO score

To improve your FICO score, you've got to obtain the reports that are used 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. Also available are information and online tools that help you analyze what actions might have the greatest impact on 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. 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'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Call us: 7072522700.