You Credit Score: How's Your FICO?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan boils down to just one number. The FICO score is created by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car loans etcetera.

Each of the three credit agencies has its own 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 the formulas vary, the differences aren't huge; they all use the following factors to build your credit score:

• Your Credit History - How long have you had credit?
• Late Payments - Do you pay your bills on time?
• Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
• Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

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

Not just for qualifying

Did you know? 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 about your FICO score? Very little in the short term. Since the FICO score is based on a lifetime of credit history, it's very difficult to significantly improve the number with quick fixes. (Of course you must have incorrect items removed from your credit report.)

Getting your FICO score

In order to improve your FICO score, you must have the credit 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 along with credit reports from all three agencies. Also available are information and online tools that can 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 the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

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

Curious about credit scores? Call us: 7209331025.