Scoring your Credit - How's your FICO?

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your history of paying all types of loans to compile a FICO score.

Each of the three credit agencies has its own formula for building your credit score. The original FICO model 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 the formulas vary, the differences aren't huge; all of the agencies use the following factors in building your credit score:

  • Your Credit History - Have you had credit for years, or for a short time?
  • Late Payments - Do you pay your bills on time?
  • Your Credit Card Balances - How many accounts? How much do you owe?
  • Requests for 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 is better. Most home buyers these days have a score above 620.

Your credit score affects how much you pay in interest every month

Did you know? 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.

Improving your score

What can you do about your FICO score? Very little in the short term. Because the credit score is entirely based on a lifetime of credit history, it's hard to change it quickly. You must, of course, remove any incorrect data on your credit report; this is the only "quick fix" for credit problems.

Know your FICO

To improve your credit score, you must get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO score, sells FICO scores on 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 can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once a 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about your FICO score? Give us a call: (303) 650-9400.

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