About the FICO Credit Score

Since we live in an automated society, it's not surprising that your ability to repay your mortgage boils down to just one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary, the differences aren't huge; all of the agencies use the following factors to build your credit score:

  • Credit History - How long have you had credit?
  • Payment History - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts do you hold? How much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher scores are better. Typical home buyers will likely find their scores falling above 620.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

What can you do to improve your FICO score? Very little in the short term. So called "credit repair" companies advertise quick fixes, but the score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. You must appeal for the credit agency to remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.

Getting your FICO score

In order to raise your score, you must have the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three agencies. Also available are information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from the three major credit reporting agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Call us at (303) 650-9400.

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