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?
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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.
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