How's your FICO Score?

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage comes down to a single number. This score is compiled by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car loans and the like.

The three agencies use slightly different formulas to build 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 these methods vary, all of the agencies use the following to build your credit score:

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

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most folks who want to get a mortgage loan these days score 620 or above.

FICO makes a difference in your interest rate

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Improving your score

What can you do to improve your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should remove incorrect data on your credit report.)

Getting your FICO score

Before you can improve your FICO score, you have to obtain your score and make certain that the reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO score, sells credit scores on its website: myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. They also provide information and 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 every year from the three major credit reporting agencies when you visit 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 obtain the right mortgage for you.

Want to know more about credit scores? Give us a call: 866-300-1550.