How's your FICO Score?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to a single number. The FICO score is created by credit agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car loans and the like.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model 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 determine a credit score:

• Your Credit History - Have you had credit for many years, or for a short time?
• 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?
• 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 results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers will likely find their scores falling between 620 and 800.

FICO makes a difference in interest rates

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

What can you do about your FICO score? Very little in the short term. Since the score is entirely based on your lifelong credit history, it's hard to change it quickly. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO score

Before you can improve your credit score, you have to obtain your score and make sure that the reports from each agency are correct. Fair Isaac, the company that invented the original FICO score, offers FICO scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. Also available are helpful information and online tools that can help you understand how to improve your credit score.

You can get a free credit report once per year from the three major 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 information, 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? Call us: 3103737406.