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. 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.

The three agencies use slightly different formulas to build 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 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 long have you had credit?
  • Late Payments - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers probably find their FICO scores above 620.

FICO makes a big difference in your interest rate

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.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is built on your lifetime credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

To raise your FICO score, you've got to get the credit 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. It's inexpensive to get your FICO from all three reporting agencies, along with your credit report. They also provide information and tools that can help you improve your credit score.

You can get a free credit report once a year from all three agencies by visiting 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 information, 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 at (718) 639-9500.

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