FICO - Your Credit Score

Since we live in a computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. The FICO score is compiled by credit agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a 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 these methods vary from one agency to another, each agency uses the following to determine your score:

• Credit History - Have you had credit for 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 accounts do you have? How much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most folks getting a mortgage 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. Lenders give lower interest rates to individuals with higher scores.

Improving your score

What can you do to raise your FICO score? Very little in the short term. Since the credit score is entirely based on your lifelong credit history, it's very hard to significantly improve the score with quick fixes. (Of course you can and should remove incorrect data on your credit report.)

Getting your FICO score

To improve your credit score, you must 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 to quickly get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you improve your credit score.

You can get a federally-mandated free credit report once a 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 obtain the most favorable mortgage.

Curious about your FICO score? Give us a call: 8102292820.