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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. |
