How's your FICO Score?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan boils down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit reporting agencies has its own 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 these methods vary from one agency to another, all of the agencies use the following to build your credit score:

  • Credit History - How many years have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many accounts do you hold? How much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most folks getting a mortgage in the current environment score 620 or above.

Your FICO score affects your monthly payment

Did you know? 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.

Raising your FICO score

How can you raise your FICO score? Because the credit score is entirely based on your lifelong credit history, it is hard to make a significant improvement in the number with quick fixes. You must appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only "quick fix" for credit problems.

Getting your FICO score

Before you can improve your FICO score, you must know your score and be sure that the credit reports from each 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 credit reports from all three credit reporting agencies. Also available are helpful information and online 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 every year from all three credit reporting agencies by visiting 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.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about credit scores? Call us: 2146635355.