Scoring your Credit - How's your FICO?

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Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your history of paying all types of loans to compile your FICO score.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO score 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 these methods vary, the differences aren't huge; each agency uses the following factors to calculate your score:

• Credit History - Have you had credit for years, or for a short time?
• Late Payments - Do you have a history of late payments?
• Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe?
• Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers will probably find their FICO scores between 620 and 800.

Not just for qualifying

Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

Is it possible to raise your credit score? So called "credit repair" companies advertise quick fixes, but the FICO score is formulated from your lifelong credit history, so you can't turn it around right away. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.

Getting your credit score

Before you can improve your score, you must get your score and make sure that the credit reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to 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 understand how to improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Armed with this info, 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 your FICO score? Call us at (678) 336-5200.