About the FICO Credit Score

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to just one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO score 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, the differences aren't huge; they all use the following in building a credit score:

• Your Credit History - Have you had credit for years, or for a short time?
• History of Payments - Do you pay your bills on time?
• Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted 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 scores are better. Most borrowers who want to get a mortgage these days score 620 or above.

FICO makes a big difference in interest rates

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.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is based on your lifelong credit history, it's hard to significantly improve the score with quick fixes. (Of course you can and should remove incorrect data on your credit report.)

Getting your FICO score

To raise your FICO score, you must have the credit reports that are used to build it, and of course, you need the score itself. 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 reports from all three agencies. Also available are information and tools that 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 all three 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 info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about credit scores? Call us: 610-565-3600.