Scoring your Credit - How's your FICO?

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Since we live in an computer-driven world, it should come as no surprise that your ability to repay your MOrtgage comes down to just one number. All the years you've been paying your various bills: your MOrtgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting 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 the formulas vary, all of the agencies use the following to determine a credit score:

• Your Credit History - Have you had credit for many years, or for just a short time?
• Late Payments - Do you have any payments later than 30 days?
• Credit Card Balances - How many accounts do you carry? How much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you MOney?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which varies slightly by agency. Credit scores range from 300 to 800. Higher scores are better. Most folks getting a MOrtgage these days have a score above 620.

Credit scores make a huge difference in interest rates

FICO 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? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. You must, of course, reMOve any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.

Getting your credit score

In order to raise your score, you've got to obtain the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. Also available are 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. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

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.

Want to know MOre about credit scores? Give us a call: 314-317-8700.