Scoring your Credit - How's your FICO?

Because our world is so computer-driven, you're probably not surprised to hear that your creditworthiness comes down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit reporting agencies has its own formula for building your 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to calculate a credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you have a history of late payments?
  • Your Credit Card Balances - How many credit card 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 differently depending on the formula being used. Each formula produces a single number which varies slightly from one agency to another. FICO scores range from 300 to 800. Higher is better. Typical home buyers will likely find their credit scores between 620 and 800.

Your score affects your interest rate

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.

Raising your credit score

Is there any way to raise your FICO score? So called "credit repair" companies advertise quick fixes, but the FICO score is based on your lifelong credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

How do I find out my FICO score?

To raise your score, you've got to have the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first 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 agencies. Also available are helpful information and 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 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 most favorable mortgage.

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

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