Scoring your Credit - How's your FICO?

Because we live in an automated, it should come as no surprise that your ability to repay your mortgage boils down to a single number. This score is built by credit reporting agencies. They use the payment history of all of your loans: credit cards, mortgages, car loans and others.

The three agencies use slightly different formulas to build a credit score. The original FICO score was developed by Fair Isaac and Company. Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While each of the models considers a range of data available in your credit report, the differences aren't huge; all of the agencies use the following factors in building a score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is better. Most home buyers have a score above 620.

Your score greatly affects your interest rate

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is based on your lifelong credit history, so you can't turn it around right away. (Of course you can and should appeal incorrect items on your credit report.)

Getting your FICO score

Before you can improve your credit score, you must obtain your score and be sure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. They also provide helpful information and tools that help you improve your credit score.

You can get a federally-mandated free credit report once a year from the three major credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Want to know more about credit scores? Give us a call: (303) 650-9400.

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