Scoring your Credit - How's your FICO?

Because we live in a computer-driven society, it's probably not that surprising that your creditworthiness boils down to one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO score 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, the differences aren't huge; all of the agencies use the following to build your score:

• Credit History - How long have you had credit?
• Late Payments - Do you pay your bills on time?
• Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
• Requests for Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher is better. Typical home buyers will probably find their scores falling above 620.

Your FICO score affects your interest rate

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

Raising your FICO score

What can you do about your FICO score? Very little in the short term. Because the FICO score is based on your lifelong credit history, it's very hard to change it quickly. You must, of course, remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

Before you can improve your score, you have to get your score and be sure that the credit reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are 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 per year from the three major credit reporting agencies at 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.

Now that you have all the facts, you will 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.