You Credit Score: How's Your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage boils down to a single number. This score is created by credit reporting agencies. They use the payment history from your various loans: credit cards, mortgages, car/boat loans etcetera.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, the differences aren't huge; they all use the following factors to build a score:

• Credit History - Have you had credit for many years, or for a short time?
• Payment History - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many accounts? How much do you owe?
• Inquiries on Your Credit - 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. Each formula produces a single number which varies slightly from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Typical home buyers will probably find their credit scores falling above 620.

Not just for qualifying

Did you know? FICO 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.

Can I improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the FICO score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You should remove any incorrect data on your credit report; this is the only way to quickly improve your credit score.

Know your FICO score

Before you can improve your credit score, you have to get your score and make sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from all three agencies at 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.

Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Give us a call: 3217777277.