Scoring your Credit - How's your FICO?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage comes down to just one number. This score is compiled by credit reporting agencies. These agencies use the payment history from all of your loans: credit cards, mortgages, car/boat loans and others.

All three 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. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, each agency uses the following to calculate a credit score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • Payment History - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you have? How much do you owe on your accounts?
  • Credit Inquiries - 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 result is one number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score 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

How can you raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, remove any incorrect data from your credit report; this is the only "quick fix" for credit troubles.

Know your FICO

To raise your score, you must obtain the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO score, offers scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are 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 every year from the three major credit reporting 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.

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

Curious about your credit score? Call us at (720) 550-4235.

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