You Credit Score- How’s Your FICO?

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Since we live in an automated society, it’s not surprising that your ability to repay your mortgage loan boils down to a single number. Credit reporting agencies use your history of paying loans to build this score.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building a credit score. The original FICO model 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, all of the agencies use the following to build a score:

• Your Credit History – How long have you had credit?
• History of Payments – Do you pay your bills on time?
• Balances on your Credit Cards – How many accounts do you carry? 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 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 scores are better. Typical home buyers will probably find their FICO scores above 620.

Your credit score greatly affects your interest rate

FICO 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 about your FICO score? Unfortunately, not much. 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.)

How do I find out my credit score?

To raise your score, you must obtain the credit reports that the agencies use to build it, and of course, you need the score itself. 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 as well as reports from all three agencies. They also provide information and online tools that can help you understand how to improve your credit score.

You can get a free credit report once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won’t get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

Now that you have all the facts, you’ll be a more informed consumer and you’ll be better positioned to obtain the most favorable mortgage.