How's your FICO Score?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan comes down to just one number. Credit reporting agencies use your payment history to create this score.

Each of the three credit reporting agencies has its own 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 these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following in building a score:

• Credit History - How many years have you had credit?
• History of Payments - Do you pay your bills on time?
• Credit Card Balances - How many accounts do you have? How much do you owe on your accounts?
• Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is always better. Typical home buyers will likely find their FICO scores falling between 620 and 800.

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.

Improving your score

Is it possible to raise your FICO score? Since the score is entirely based on your lifelong credit history, it's very difficult to change it quickly. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.

How do I find out my credit score?

In order to improve your credit 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 to quickly get your FICO score from all three agencies, along with your credit report. Also available are information and tools that can help you understand how to improve your FICO score.

You can get a federally-mandated free credit report every year from the three major agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Call us at (808) 935-0678.