How's your FICO Score?

Because our society is so automated, it's probably not that surprising that your creditworthiness comes down to one number. Credit reporting agencies use your payment history in order to create this score.

Each of the three credit agencies has its own formula for building your credit 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 - Have you had credit for years, or for a short time?
• Late Payments - Do you pay your bills on time?
• Your 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 report for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers will probably find their credit scores falling above 620.

Not just for qualifying

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.

Improving your score

Is there any way to improve your FICO score? Since the FICO score is entirely based on a lifetime of credit history, it is difficult to change it quickly. You should appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only "quick fix" for credit troubles.

Know your FICO

In order to improve your credit score, you've got to obtain the reports that the agencies use to build it. Of course, you need the score as well. 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 reporting agencies. They also provide 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 every year from the three major 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 info, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about credit scores? Give us a call: 1-800-606-2794.