About the FICO Credit Score

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number. The FICO score is compiled by credit agencies. They use the payment history of your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.

The three credit reporting agencies use slightly different formulas to build 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 the formulas vary, all of the agencies use the following to calculate a score:

• Credit History - How long have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many accounts? How much do you owe?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on the formula being used. Each formula produces a single number which may vary a a little by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers have a score above 620.

FICO makes a huge difference in interest rates

Did you know? 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.

Improving your score

What can you do to improve your FICO score? Unfortunately, not much. Since the FICO score is based on a lifetime of credit history, it is difficult to change it quickly. You should remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.

How do I find out my FICO score?

In order to improve your score, you must get the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. They also provide information and tools that can help you understand how to improve your FICO score.

You can get a free credit report every year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free credit 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 obtain the most favorable mortgage.

Want to know more about your credit score? Give us a call at (207) 571-8034.