How's your FICO Score?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to just one number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary formula for building your credit score. The original FICO 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, all of the agencies use the following to determine a credit score:

• Credit History - How many years have you had credit?
• Late Payments - Do you have a history of late payments?
• Your Credit Card Balances - How many accounts do you have, and how much do you owe on them?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly from one agency to another. FICO scores range from 300 to 800. Higher scores are better. Most borrowers getting a mortgage loan score 620 or above.

Credit scores make a huge 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.

Improving your score

What can you do about your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is calculated from your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO

Before you can improve your score, you must know your score and make sure that the reports from each agency are correct. Fair Isaac, the company that offered the first FICO credit score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. Also available are helpful 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 once per year from all three 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.

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

Want to know more about your credit score? Give us a call: (808) 935-0678.