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:

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.  They can also affect your ability to get a job or your rate on car insurance or homeowners insurance.

Conveniently, Fair Isaac has created a web site (www.myFICO.com) that let's you find out your fico score. 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.  HOWEVER, PLEASE KNOW THAT THE FICO SCORE YOU GET AS A CONSUMER IS VERY DIFFERENT FROM THE ONE THAT IS PULLED FOR THE PURPOSE OF A MORTGAG LOAN.  The main advantage of getting a copy of your credit report is to make sure you are aware of all the accounts that are open in your name to spot any fraud, and to check for reporting errors.  It is a waste of money to pay for your consumer score because when your mortgage loan officer pulls their credit report, the score will be vastly different and it's the mortgage loan score that is used to qualify for a mortgage loan.

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