How's your FICO Score?

Since we live in an automated world, it's not surprising 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.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. . 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, the differences aren't huge; all of the agencies use the following factors to build your score:

• Credit History - Have you had credit for years, or for just a short time?
• History of Payments - Do you have a history of late payments?
• Your Credit Card Balances - How many accounts do you carry? 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. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get a mortgage in the current environment have a score above 620.

Credit scores make a big difference in your interest rate

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my FICO score?

How can you raise your credit score? Since the credit score is entirely based on a lifetime of credit history, it's very difficult to change it quickly. You should, of course, appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.

Know your FICO

Before you can improve your FICO score, you must obtain your score and make sure that the reports from each credit reporting agency are correct. Fair Isaac, the company that invented the original FICO credit score, sells credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. They also provide helpful information and online tools that help you understand how to improve 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. 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'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Call us: 305-967-7200.