You Credit Score: How's Your FICO?

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Since we live in an automated, it's probably not that surprising that your ability to repay your mortgage comes down to one number. The FICO score is built by credit agencies. They use the payment history of all of your loans: credit cards, mortgages, car loans and others.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. . 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, the differences aren't huge; they all use the following in calculating a score:

• Credit History - Have you had credit for many years, or for just a short time?
• History of Payments - Do you pay your bills on time?
• Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The result is one number. FICO scores range from 300 to 800. Higher is always better. Most borrowers getting a mortgage loan these days have a score above 620.

Your credit score greatly affects your monthly payment

Did you know? 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

What can you do about your FICO score? Unfortunately, not much. 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.)

Getting your FICO score

In order to raise your FICO score, you must obtain the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO credit score, offers FICO scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. They also provide helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report every year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

Armed with this information, 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 credit scores? Give us a call: 813-319-6500.