Scoring your Credit - How's your FICO?

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

Each of the three credit agencies has its own formula for building your credit score. The original FICO score 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to calculate a credit score:

• Your Credit History - How many years have you had credit?
• Payment History - Do you pay your bills on time?
• Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most folks getting a mortgage score 620 or above.

FICO makes a huge difference in your interest rate

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I improve my FICO score?

What can you do about your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifetime credit history, so you can't turn it around right away. (Of course you must remove incorrect data on your credit report.)

How do I find out my credit score?

In order to raise your score, you've got to have the reports that the agencies use to build it. Of course, you need the score as well. 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 agencies. Also available are helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every 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.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about credit scores? Give us a call: 7184417000.