You Credit Score- How's Your FICO?

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Since our world is so computer-driven, you're probably not surprised to hear that your ability to repay your mortgage loan comes down to a single number. Credit reporting agencies use your history of paying loans to build this score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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, each agency uses the following to build your credit score:

• Your Credit History - How many years have you had credit?
• Payment History - Do you have a history of late payments?
• 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?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. Credit scores range from 300 to 850. Higher is always better. Most home buyers in the current environment 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. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

Is it possible to improve your FICO score? So called "credit repair" companies advertise quick fixes, but the FICO score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO score

Before you can improve your FICO score, you have to obtain your score and make sure that the reports from each agency are correct. 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 reports from all three reporting agencies. They also provide information and online 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. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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.