Your FICO Score

Since we live in a computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to just one number. The FICO score is created by credit reporting agencies. They use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and the like.

Check your credit score here
The three credit reporting agencies use slightly different formulas to build a credit 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 each of the models considers a range of data available in your credit report, the differences aren’t huge; all of the agencies use the following in calculating your score:

• Your Credit History – Have you had credit for many years, or for a short time?
• Payment History – Do you pay your bills on time?
• Balances on your Credit Cards – How many credit card accounts do you have, and how much do you owe?
• Inquiries on Your Credit – How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.

FICO makes a big difference in your interest rate
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
Is it possible to raise your FICO score? 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 appeal incorrect items on your credit report.)

Know your FICO
In order to improve your score, you must get the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a website (www.myFICO.com) that lets you do just that. It’s inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from all three agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to “upgrade” your report to include a credit score is very reasonable.

Now that you have all the facts, you will be a more informed consumer and you’ll be better positioned to get the right mortgage for you.