How's your FICO Score?

Since we live in a computer-driven world, it's probably not that surprising that your creditworthiness comes down to a single number. The FICO score is built by credit reporting agencies. They use the payment history of all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following factors to calculate your credit score:

• Credit History - How many years have you had credit?
• History of Payments - Do you have a history of late payments?
• Credit Card Balances - How many accounts do you have, and how much do you owe?
• Requests for Credit - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher scores are better. Most borrowers who want to get a mortgage in the current environment have a score above 620.

Your FICO score greatly affects your interest rate

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

What can you do to improve your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you must appeal incorrect items on your credit report.)

How do I find out my credit score?

To raise your credit score, you must get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. Also available are information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from the three major 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.

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

Curious about credit scores? Call us at 7202537070.