Your Credit Score

In today's increasingly automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number. All the years you've been paying your mortgage, car 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.  This is what is known as your Credit Score (FICO).

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. Each of the models considers a range of data available in your credit report. The primary factors are:

Each of these, and other items, are assigned a value and a weight. The results are added 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 falling between 600 and 800.

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

Under the Fair and Accurate Credit Transactions Act (FACT Act) consumers are entitled to a FREE credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian and TransUnion). Go to www.AnnualCreditReport.com or call 877-322-8228 to receive a FREE copy of your credit report. You must enter your Social Security Number to receive a free credit report.  The site's security protocols and measures are designed to protect the personally identifiable information you provide from unauthorized access or alteration.  As an added security measure, you can choose to have your credit report display no more than the last 4 digits of your Social Security number.

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 to make a significant change in the number with quick fixes. The most important thing is to know your FICO score and to ensure that your credit history is correct. Fair Isaac has created a web site (www.myFICO.com).  For a fee, you can get your FICO score from all three reporting agencies, along with your credit report.  Also available is some helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score. Each of the credit services offers similar services 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 better positioned to obtain the most favorable mortgage available to you.