How's your FICO Score?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage comes down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company. 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 the formulas vary from one agency to another, all of the agencies use the following to determine your score:

• Credit History - How many years have you had credit?
• Payment History - Do you pay your bills on time?
• Credit Card Balances - How many accounts do you hold? How much do you owe?
• Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. The result is one number. 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 big difference in interest rates

Did you know? 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.

Can I improve my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)

How do I find out my FICO score?

Before you can improve your score, you have to obtain your score and make sure that the credit reports from each credit 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 reports from all three credit reporting agencies. They also provide helpful information and online tools that 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 agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick 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 your FICO score? Give us a call at (808) 935-0678.