Scoring your Credit - How's your FICO?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number. The FICO score is built by credit agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car/boat loans etcetera.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO score 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 build a score:

• Your Credit History - How long 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 have? How much do you owe on your accounts?
• Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which may vary a a little from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers who want to get a mortgage loan have a score above 620.

Credit scores make a big difference in interest rates

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.

Can I improve my FICO score?

How can you 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 have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your score, you have to get your score and ensure that the reports from each reporting agency are correct. Fair Isaac, the company that invented the first FICO credit score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. Also available are helpful information and tools that can help you improve your credit score.

You can get a federally-mandated free credit report once per year from the three major credit reporting 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.

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 your credit score? Give us a call: 2817780805.