Scoring your Credit - How's your FICO?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, all of the agencies use the following to determine your credit score:

• Your Credit History - How long have you had credit?
• Payment History - Do you pay your bills on time?
• Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
• Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most home buyers probably find their credit scores falling between 620 and 800.

FICO makes a big difference in interest rates

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.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the score is built on your lifelong credit history, so you can't turn it around right away. You should remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.

Getting your FICO score

In order to raise your credit score, you've got to obtain the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that invented the first FICO credit score, offers scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. Also available are helpful 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 all three agencies by visiting 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 will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Call us: 5613734149.