How's your FICO Score?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, the three major credit 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, the differences aren't huge; each agency uses the following to build your score:

• Credit History - Have you had credit for years, or for a short time?
• Payment History - Do you pay your bills on time?
• Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers in the current environment 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

Is there any way to improve your FICO score? Despite what you hear from "credit repair" companies, the score is based on your lifetime credit history, so you can't turn it around right away. You must, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.

Know your FICO score

Before you can improve your FICO score, you must obtain your score and make certain that the reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO score, offers credit scores on myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide 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 once a year from the three major agencies at 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 credit score? Call us at 4025970500.