Scoring your Credit - How's your FICO?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage boils down to just one number. This score is built by credit reporting agencies. They use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, and the like.

The three agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, all of the agencies use the following to determine a credit score:

  • Your Credit History - How many years have you had credit?
  • Payment History - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these factors is assigned a value and a weight. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most borrowers getting a mortgage in the current environment have a score above 620.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

How can you raise your credit score? 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 FICO score, you must get 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. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. They also provide helpful information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from all three credit reporting agencies when you visit 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 get the most favorable mortgage.

Curious about credit scores? Give us a call: 952 417 8481.

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