FICO - Your Credit Score

Since we live in an automated world, it's not surprising that your ability to repay your mortgage boils down to just one number. Credit reporting agencies use your loan payment history in order to build this score.

Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary formula for building your credit score. Fair Isaac and Cooriginally developed this score. . 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, the differences aren't huge; they all use the following in calculating your credit score:

• Credit History - Have you had credit for years, or for just a short time?
• Payment History - Have you paid more than 30 days late?
• Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher is better. Typical home buyers likely find their FICO scores above 620.

Your FICO score affects your interest rate

Did you know? 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.

Improving your score

What can you do to raise your FICO score? Unfortunately, not much. So called "credit repair" companies advertise quick fixes, but the FICO score is formulated from your lifetime credit history, so it's not possible to raise it significantly in the short term. You must, of course, remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.

How do I find out my FICO score?

In order to improve your score, you must have the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the original FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide helpful information and tools that can help you analyze what actions might have the greatest impact on 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. 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 information, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Call us: 8132007931.