How's your FICO Score?

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

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. 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 your score:

  • Your Credit History - How many years have you had credit?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many credit card accounts do you have, and how much do you owe?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. 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 have a score above 620.

Not just for qualifying

Did you know? Credit 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.

Can I improve my FICO 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 must, of course, remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

Before you can improve your score, you must know your score and make sure that the credit reports from each agency are correct. Fair Isaac, the company that offered the original FICO credit score, sells scores on 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 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 per year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

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

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

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