Scoring your Credit - How's your FICO?

Since our world is so automated, it's probably not that surprising that your ability to repay virtually any loan comes down to one number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three credit reporting agencies use slightly different formulas to build 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, each agency uses the following to calculate your score:

• Credit History - How many years have you had credit?
• Late Payments - Have you paid more than 30 days late, and how often?
• Credit Card Balances - 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 assigned weights based on the formula being used. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers will probably find their credit scores falling between 620 and 800.

Your credit score greatly affects how much you pay in interest every month

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.

Can I improve my credit 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. (Of course you must appeal incorrect items on your credit report.)

Getting your FICO score

In order to improve your FICO score, you've got to get the credit reports that the agencies use to build it, and of course, you need the score itself. 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 credit 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 a year from the three major credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Armed with this information, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about your FICO score? Give us a call: 7205988300.