How's your FICO Score?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan comes down to just one number. The FICO score is created by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car loans and others.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 your score:

• Your Credit History - How many years have you had credit?
• Late Payments - Do you have a history of late payments?
• Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most people getting a mortgage loan these days score 620 or above.

Credit scores make a big difference in your interest rate

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

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

Getting your FICO score

In order to improve your credit score, you've got to obtain the reports that are used to build it. Of course, you need the score as well. 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 reports from all three reporting agencies. They also provide helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from all three 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 get the right mortgage for you.

Curious about credit scores? Give us a call at 4104614043.