How's your FICO Score?

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to just one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, 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 agencies, each have their own proprietary formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. 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, all of the agencies use the following to determine your score:

• Your Credit History - Have you had credit for years, or for just a short time?
• History of Payments - Do you pay your bills on time?
• Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
• 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. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most people who want to get a mortgage have a score above 620.

FICO makes a huge difference in interest rates

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Is there any way to raise your credit score? So called "credit repair" companies advertise quick fixes, but the score is built on your lifelong credit history, so you can't turn it around right away. You must remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

How do I find out my credit score?

Before you can improve your credit score, you have to get your score and be sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO score, offers FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are information and online tools that can help you improve your credit score.

You can get a federally-mandated free credit report once a year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

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

Curious about credit scores? Call us: 5626935048.