How's your FICO Score?

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

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to build a credit score:

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

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 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.

Can I improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is calculated from your lifelong credit history, so you can't turn it around right away. You must, of course, remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.

How do I find out my FICO score?

To improve your credit score, you've got to 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, 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 understand how to improve your credit score.

You can get a free credit report once per year from the three major 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.

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

Curious about your FICO score? Call us at 2037296681.