How's your FICO Score?

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

Each of the three credit agencies has its own formula for building your 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to build a credit score:

  • Your Credit History - How many years 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 slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly by agency. FICO 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.

FICO makes a big difference in interest rates

Did you know? 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 improve my credit score?

Is there any way to improve your FICO score? Despite what you hear from "credit repair" companies, the FICO score is built on your lifelong credit history, so you can't turn it around right away. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO

In order to raise your score, you must have the reports that are used 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. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. Also available are information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report every year from all three credit reporting 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.

Now that you have all the facts, 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? Give us a call at (203) 526-9345.

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