Scoring your Credit - How's your FICO?

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. The FICO score is created by credit reporting agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and others.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 from one agency to another, the differences aren't huge; they all use the following in calculating a credit score:

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

These factors are weighted a little bit differently depending on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher is always better. Most people who want to get a mortgage loan these days have a score above 620.

FICO makes a huge difference in your interest rate

FICO 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.

Raising your 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 score is based on your lifelong credit history, so it's not possible to raise it significantly in the short term. You must, of course, appeal for the credit agency to remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your score, you must obtain your score and make certain that the credit reports from each agency are correct. Fair Isaac, the company that invented the original FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are helpful information and tools that can help you understand how to improve your credit score.

You can get a free credit report once a year from the three major credit reporting agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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

Want to know more about your credit score? Give us a call at 2148657442.