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, FICO) 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. Most FICO scores range from 300 to 800, with higher being better. Typical home buyers likely find their scores falling between 630 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 you should qualify for a good mortgage rate. Low credit scores create a higher risk situation for the lender, thus you many find your mortgage interest rate to be very high along with being charged higher closing costs. It is generally better to set a goal of raising your credit score to the "good credit" level rather than to accept a high interest rate loan. Raising your credit score can be a simple as paying all your bills on time for the next year & not maxing out the credit lines you currently have in place.

Your Minister Realty agent can refer you for a consultation with a reliable loan officer providing mortgage financing a year in advance of your home purchase.  Unfortunately, little can be done to improve your score in a short period of time. Conveniently, Fair Isaac has created a web site www.myFICO.com  with 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.