Scoring your Credit - How's your FICO?

Because we live in an automated, it's probably not that surprising that your creditworthiness comes down to one number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own 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 these methods vary from one agency to another, each agency uses the following to calculate a score:

• Your Credit History - Have you had credit for years, or for a short time?
• Payment History - Do you have any payments later than 30 days?
• Your Credit Card Balances - 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. 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 better. Most home buyers have a score above 620.

Your FICO score affects your monthly payment

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

Is there any way 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 should, of course, remove any incorrect data on your credit report; this is really the only "quick fix" for credit troubles.

Know your FICO score

Before you can improve your score, you have to get your score and ensure that the reports from each credit 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 along with reports from all three credit 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 all three agencies when you visit AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

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