Scoring your Credit - How's your FICO?

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. The FICO score is created by credit reporting agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car loans and others.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. . 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following factors in calculating your score:

  • Your Credit History - How long have you had credit?
  • History of Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

Each of these is assigned a value and a weight. The result is one number. FICO scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. 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 to raise your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)

How do I find out my credit score?

Before you can improve your FICO score, you must get your score and ensure that the reports from each reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and tools that can help you understand how to improve your FICO score.

You can get a free credit report every year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, 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: (303) 228-2254.

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