FICO - Your Credit Score

Since we live in an automated, you're probably not surprised to hear that your ability to repay virtually any loan boils down to a single number. This score is created by credit agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 these methods vary from one agency to another, all of the agencies use the following to calculate your 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?
• Credit Card Balances - How many accounts do you have? How much do you owe?
• Credit Inquiries - 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 better. Most home buyers in the current environment have a score above 620.

Your score affects how much you pay in interest every month

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?

Is it possible to raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, remove any incorrect data on your credit report; this is really the only "quick fix" for credit problems.

Know your FICO

Before you can improve your FICO score, you have to obtain your score and be sure that the reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO credit score, offers scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. They also provide information and tools that help you understand how to improve your credit score.

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

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Give us a call: 3103737406.