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 loan comes down to just one number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building your credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, each agency uses the following to calculate a credit score:

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

These factors are assigned weights based on the formula being used. Each formula produces a single number which varies slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is better. Most people getting a mortgage in the current environment score 620 or above.

FICO makes a huge difference in your interest rate

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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is based on a lifetime of credit history, it is difficult to significantly improve the score with quick fixes. You should, of course, appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.

How do I find out my credit score?

Before you can improve your FICO score, you must obtain your score and ensure that the reports from each reporting agency are correct. Fair Isaac, the company that offered the first FICO score, sells credit scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. They also provide helpful information and tools that can help you improve your FICO score.

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

Armed with this information, you'll 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 5626935048.