You Credit Score- How's Your FICO?

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to just one number. Credit reporting agencies use your history of paying all types of loans to compile this score.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO score 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, all of the agencies use the following to calculate a score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • Late Payments - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will likely find their FICO scores falling above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your FICO score

What can you do about your FICO score? Very little in the short term. Since the FICO score is entirely based on a lifetime of credit history, it's very hard to change it quickly. (Of course you must appeal incorrect items on your credit report.)

Getting your credit score

Before you can improve your score, you have to obtain your score and ensure that the credit reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, offers scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

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

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