You Credit Score: How's Your FICO?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. Credit reporting agencies use your history of paying all types of loans in order to compile this score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 determine a credit score:

  • Credit History - How many years have you had credit?
  • Late Payments - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts do you have, and how much do you owe on them?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most people who want to get a mortgage these days have a score above 620.

Not just for qualifying

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my FICO score?

What can you do to raise your FICO score? Very little in the short term. Since the credit score is based on a lifetime of credit history, it's difficult to make a significant change in the score with quick fixes. (Of course you can and should have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your FICO score, you have to know your score and be sure that the reports from each agency are correct. Fair Isaac, the company that invented the first FICO score, offers credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. They also provide helpful information and online tools that help you understand how to improve your credit score.

You can get a free credit report once a year from all three 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.

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

Want to know more about your credit score? Give us a call: 720-598-8300.

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