FICO – Your Credit Score

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

The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score “FICO”, TransUnion calls its score “Beacon” and Equifax uses “Empirica.” While each of the models considers a range of data available in your credit report, the differences aren’t huge; all of the agencies use the following factors in building your credit score:

• Your Credit History – How long have you had credit?
• History of Payments – Do you have a history of late payments?
• Credit Card Balances – How many credit card 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?

These factors are weighted differently depending on the formula being used. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher is always better. Most folks who want to get a mortgage loan these days score 620 or above.

Your score affects your interest rate

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Improving your score

Is there any way to improve your FICO score? Some companies promise quick fixes, but they can’t do anything different than what you can do — for free. You should, of course, remove any incorrect data from your credit report; this is the only “quick fix” for credit problems.

How do I find out my FICO score?

In order to raise your FICO score, you must have the reports that the agencies use to build it. Of course, you need the score as well. 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 along with credit reports from all three credit reporting agencies. Also available are helpful information and tools that help you understand how to improve your FICO score.

You can get a free credit report once per year from all three agencies by visiting AnnualCreditReport.com. You won’t get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

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