How's your FICO Score?

Since our society is so automated, it should come as no surprise that your ability to repay virtually any loan boils down to a single number. The FICO score is compiled by credit reporting agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car loans and the like.

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

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

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is always better. Typical home buyers likely find their scores between 620 and 800.

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 credit 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 built on your lifetime credit history, so you can't turn it around right away. You must, of course, appeal for the credit agency to remove any incorrect reporting on your credit report; this is the only way to quickly improve your credit score.

Getting your FICO score

In order to improve your FICO score, you must get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that offered the first FICO score, sells credit scores on myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. Also available are helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from all three credit reporting agencies by visiting 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? Give us a call at 5626935048.