How's your FICO Score?

Since our society is so automated, you're probably not surprised to hear that your creditworthiness comes down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

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 the formulas vary from one agency to another, each agency uses the following to calculate your credit score:

• Your Credit History - Have you had credit for many years, or for just a short time?
• History of Payments - Have you paid more than 30 days late?
• Balances on your Credit Cards - 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. 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 home buyers in the current environment have a score above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my FICO score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

How do I find out my FICO score?

Before you can improve your score, you must get 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. Also available are helpful information and online tools that can help you improve your credit score.

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

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 your credit score? Call us at (207) 571-8034.