FICO - Your Credit 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 a single number. Credit reporting agencies use your history of paying loans to build this score.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building a 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; each agency uses the following in building a score:

• Your Credit History - How long have you had credit?
• Payment History - Do you pay your bills on time?
• Credit Card Balances - How many accounts do you have, and how much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. FICO scores range from 300 to 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

FICO 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.

Improving your score

Is there any way to improve your FICO score? Since the credit score is entirely based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. (Of course you must remove incorrect data on your credit report.)

Know your FICO score

Before you can improve your FICO score, you must know your score and ensure that the credit reports from each 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 along with credit reports from all three agencies. Also available are information and online tools that help you understand how to improve your credit score.

You can get a free credit report every year from the three major credit reporting agencies at AnnualCreditReport.com. These reports do not include a free 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 obtain the most favorable mortgage.

Want to know more about credit scores? Give us a call: 5122916100.