How's your FICO Score?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage loan boils down to just one number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO 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 the formulas vary from one agency to another, the differences aren't huge; all of the agencies use the following factors to calculate a credit score:

• Credit History - Have you had credit for many years, or for just a short time?
• Late Payments - Do you have any payments later than 30 days?
• Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
• Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted slightly differently depending on which formula the agency uses. The result is a single number: your FICO score. 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 these days have a score above 620.

Not just for qualifying

Credit scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my FICO score?

What can you do to improve your FICO score? Very little in the short term. Because the credit score is entirely based on your lifelong credit history, it's very difficult to change it quickly. (Of course you must appeal incorrect items on your credit report.)

Getting your credit score

In order to raise your FICO score, you must get the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the original FICO score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. Also available are information and online tools that can help you improve your credit score.

You can get a free credit report every year from the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Call us: (941) 366-5800.