All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a different system to arrive at a credit score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company ("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:
- 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 800, with higher being better. Typical home buyers likely find their scores falling between 600 and 800. A score ofb 640 or better is typically needed to qualify for conventional financing, although a number of loan programs are available for lower scores.
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.
Since the FICO score is based on acumulated years 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.
• You can get a free copy of your credit report (one per year) under a new federal law passed in 2004, by visiting: www.annualcreditreport.com
• You can get your FICO score from all three reporting agencies, along with your credit report, by visiting: www.myFICO.com that let's you do just that. You will be charged a fee. This site also offers 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.
