FICO - Your Credit Score

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Since our society is so automated, you're probably not surprised to hear that your ability to repay your mortgage comes down to a single number. The FICO score is compiled by credit agencies. They use the payment history from your various loans: mortgages, car loans, credit cards, et cetera.

Equifax, TransUnion, and Experian, the three major credit agencies, each have their own proprietary formula for building your 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 from one agency to another, each agency uses the following to calculate your credit score:

• Credit History - How many years have you had credit?
• History of Payments - Do you have a history of late payments?
• Your Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most people who want to get a mortgage loan in the current environment score 620 or above.

Your FICO score affects your interest rate

Did you know? FICO 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.

Raising your FICO score

How can you improve your FICO score? Since the score is based on your lifelong credit history, it's difficult to make a significant improvement in the number with quick fixes. (Of course you can and should appeal incorrect items on your credit report.)

How do I find out my FICO score?

Before you can improve your score, you have to know your score and ensure that the credit reports from each agency are correct. Fair Isaac, the company that offered the original FICO score, sells credit scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. Also available are information and 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 at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.

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? Give us a call at 573-302-9990.