FICO - Your Credit Score

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

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to build a credit score:

• Your Credit History - How long have you had credit?
• History of Payments - Do you pay your bills on time?
• Credit Card Balances - How many accounts? How much do you owe on your accounts?
• Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Is it possible to raise your FICO score? Because the FICO score is based on a lifetime of credit history, it's very hard to make a significant change in the number with quick fixes. (Of course you must remove incorrect data on your credit report.)

Know your FICO

Before you can improve your credit score, you must know your score and make sure that the reports from each agency are correct. Fair Isaac, the company that offered the original FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are helpful information and tools that help you improve your credit score.

You can get a free credit report every year from the three major agencies when you visit 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.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

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