You Credit Score: How's Your FICO?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to a single number. This score is built by credit agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, etcetera.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. Fair Isaac and Cooriginally developed this score. . 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 build a credit score:

• Your Credit History - How many years have you had credit?
• History of Payments - Have you paid more than 30 days late?
• Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
• Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is a single number: your credit score. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers these days have a score above 620.

FICO makes a difference in your interest rate

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.

Improving your score

How can you raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your score, you must obtain your score and make certain that the reports from each 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 as well as credit reports from all three credit reporting agencies. Also available are 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 every year from all three credit reporting agencies at 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Give us a call at 504-866-5626.