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, an important indicator of your ability to pay is a single number which is now widely known as your FICO score. 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 by 3rd party creditors? It is best that you know your FICO score yourself and minimize these inquiries.
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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 850, with higher being better. Typical home buyers likely find their scores falling between 600 and 840. Although there may be programs available for scores as low as 530 !
FICO scores are used for more than just a determining factor as to 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 and higher loan to value ratios.
What can you do about your FICO score?
1. Pay your bills on time. With variety of online banking system available today, you can schedule your payments online to insure timely delivery.
2. Always pay more than the "minimum payment" on revolving accounts or any other obligations if you can afford it.
3. Do not run up your credit card balances to the maximum or yet worse over the maximum limit.
4. Do not apply for extra credit unless you really have to.
5. Do not close accounts with available balances. Just spend responsibly .
6. Avoid liberally authorzing inquiries into your credit profiles especially when you need to know your score when shopping for a loan. So, 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 credit scores from all three reporting agencies, along with your credit report. Armed with this information, you will be a more informed consumer and better positioned to obtain the most favorable mortgage available to you or at least know where you stand.
7. Pay attention that for positive developments to affect your FICO score, there is a time lag of at least one month and it is not immediate. So in order to be "mortgage ready" , it is wise to plan ahead and/or continiously monitor your credit reports and scores.
8. You need to continously insure that your credit report is accurate and dispute what you consider inaccurate.
If you have any questions regarding you are welcome to ask a question by clicking on our " Got a Question ?" link above the mortgage calculator. Otherwise, there are still addtional tips at myFico.com to take control of your credit score . 
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