How's your FICO Score?

Because we live in a computer-driven society, it should come as no surprise that your creditworthiness comes down to a single number. Credit reporting agencies use your loan payment history in order to compile this score.

Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building a credit score. The original FICO score 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, all of the agencies use the following to determine your score:

• Credit History - How many years have you had credit?
• Payment History - Do you pay your bills on time?
• Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
• Credit Inquiries - 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. Each formula produces a single number which may vary a a little by agency. Credit scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers will likely find their credit scores between 620 and 800.

FICO makes a big difference in your interest rate

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

Improving your score

What can you do to raise your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my FICO score?

Before you can improve your FICO score, you must know your score and make certain that the reports from each reporting agency are correct. Fair Isaac, the company that invented the first FICO score, offers credit scores on its website: myFICO.com. For a reasonable fee, you can get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that can help you improve your credit score.

You can get a free credit report once a year from all three 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 obtain the right mortgage for you.

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