How's your FICO Score?

Because our society is so automated, it's probably not that surprising that your ability to repay virtually any loan comes down to a single number. This score is created by credit agencies. These agencies use the payment history of all of your loans: mortgages, car loans, credit cards, and the like.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary formula for building your 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 from one agency to another, all of the agencies use the following to calculate your credit score:

• Credit History - Have you had credit for years, or for just a short time?
• Late Payments - Have you paid more than 30 days late, and how often?
• Credit Card Balances - How many accounts? How much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. 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 borrowers getting a mortgage loan these days have a score above 620.

FICO makes a big difference in your interest rate

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is entirely based on a lifetime of credit history, it's hard to change it quickly. (Of course you must have incorrect items removed from your credit report.)

Getting your FICO score

Before you can improve your FICO score, you have to know your score and make sure that the credit reports from each agency are correct. Fair Isaac, the company that invented the first FICO credit score, offers credit scores on myFICO.com. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. 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 the three major agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

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

Want to know more about your credit score? Give us a call at (818)645-7035.