How's your FICO Score?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage boils down to a single number. This score is built by credit agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and others.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; all of the agencies use the following to build your 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, and how often?
• Your Credit Card Balances - How many credit card accounts do you have, and how much do you owe?
• Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers these days have a score above 620.

FICO makes a difference in interest rates

Did you know? 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.

Raising your FICO score

Is there any way to raise your credit score? Despite what you hear from "credit repair" companies, the score is formulated from your lifelong credit history, so you can't turn it around right away. You should, of course, remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.

How do I find out my credit score?

Before you can improve your score, you have to obtain your score and make certain that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO credit score, offers credit scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and online tools that can help you understand how to improve your credit score.

You can get a federally-mandated free credit report once a year from all three 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Call us: 7209331025.