Scoring your Credit - How's your FICO?

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan comes down to a single number. The FICO score is built by credit agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car loans and others.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary formula for building your credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following to calculate your score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary slightly by agency. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers these days have a score above 620.

Credit scores make a difference in your interest rate

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is based on a lifetime of credit history, it is hard to make a significant change in the score with quick fixes. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

To raise your credit score, you must get the reports that are used 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. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. They also provide helpful information and tools that can help you improve your FICO score.

You can get a federally-mandated free credit report once a 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 inexpensive.

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 credit scores? Give us a call at (718) 639-9500.

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