Scoring your Credit - How's your FICO?

In today's increasingly automated society, it should come as no surprise that whenyou apply for a mortgage, your ability to pay can be reduced to a singlenumber. All the years you've been paying your mortgage, car payments, and creditcard bills can be analyzed, sliced, diced, spindled and mutilated into a singleindicator of whether you're likely to meet your future obligations.

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) usea slightly different system to arrive at a score. The best known is called theFICO score, based on a model developed by Fair Isaac and Company (hence thename) and used by Experian. Equifax's model is calledBEACON, while TransUnion uses EMPIRICA. While each ofthe models considers a range of data available in your credit report, theprimary factors are:

  • Credit History - How long have you had credit?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How much do you owe on how many accounts?
  • Credit Inquiries - How many times have you had your credit checked?

Each of these, and other items, are assigned a value and a weight. The results areadded up and distilled into a single number. FICO scores range from 300 to 800,with higher being better. Typical home buyers likely find their scores fallingbetween 600 and 800.

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

What can you do about your FICO score? Unfortunately, not much.Since the score is based on a lifetime of credit history, it is difficult tomake a significant change in the number with quick fixes. The most importantthing is to know your FICO score and to ensure that your credit history iscorrect. Conveniently, Fair Isaac has created a web site (www.myFICO.com) that let's you do just that.For a reasonable fee, you can quickly get your FICO score from all threereporting agencies, along with your credit report. Also available is somehelpful information and tools that help you analyze what actions might have thegreatest impact on your FICO score. Each of the credit services offers similarservices on their web sites: www.equifax.com,www.experian.com, and www.transunion.com.

Armed with this information, you will be a more informed consumer and betterpositioned to obtain the most favorable mortgage available to you.

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