FICO - Your Credit Score

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. Credit reporting agencies use your payment history in order to create this score.

The three agencies use slightly different formulas to build a credit score. The original FICO score 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, the differences aren't huge; all of the agencies use the following to build a score:

• Credit History - How long have you had credit?
• Late Payments - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. The result is one number. Credit scores range from 300 to 800. Higher scores are better. Typical home buyers will probably find their scores falling 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 a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the FICO score is calculated from your lifelong credit history, so it's not possible to raise it significantly in the short term. You should, of course, remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Getting your FICO score

In order to improve your credit score, you've got to get the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that offered the first FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once a year from all three 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 obtain the most favorable mortgage.

Want to know more about credit scores? Give us a call: 2147390569.