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?

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 850.

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, we work with our clients to assist them in obtaining their credit report. As a part of our Home Express Mortgage Plan we validate your report with you as well as provide you a copy. For a reasonable fee, you can also obtain your FICO score from all three reporting agencies. Each of the credit services offers services on their web sites to obtain your report:

http://www.equifax.com/
http://www.experian.com/
http://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. Please contact us for a confidential discussion if you would like to discuss specific needs.