FICO - Your Credit Score

Since we live in an computer-driven society, it's not surprising 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 from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

Each of the three credit agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . 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, each agency uses the following to build a credit score:

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

These factors are assigned weights based on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

What can you do to improve your FICO score? Unfortunately, not much. Because the credit score is based on a lifetime of credit history, it's difficult to change it quickly. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.

Getting your credit score

Before you can improve your score, you have to know your score and make sure that the reports from each agency are correct. Fair Isaac, the company that offered the original FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. They also provide information and tools that help you understand how to improve your credit score.

You can get a free credit report once a 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.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

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