Scoring your Credit - How's your FICO?
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.
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 (hence the
name) and used by Experian. Equifax's model is called
BEACON, while TransUnion uses EMPIRICA. While each of
the models considers a range of data available in your credit report, the
primary 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 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.
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. 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 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.