FICO - Your Credit Score

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. This score is built by credit agencies. These agencies use the payment history from your various loans: mortgages, car loans, credit cards, and the like.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The original FICO model was developed by Fair Isaac and Company. 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; they all use the following to calculate a score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Have you paid more than 30 days late?
  • Your Credit Card Balances - How many accounts do you hold? How much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The result is one number. Credit scores range from 300 to 800. Higher is always better. Most folks who want to get a mortgage loan in the current environment have a score above 620.

Credit scores make a big difference in interest rates

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I raise my FICO score?

What can you do to raise your FICO score? Unfortunately, not much. Since the score is based on your lifelong credit history, it's very hard to change it quickly. (Of course you can and should appeal incorrect items on your credit report.)

Getting your FICO score

Before you can improve your credit score, you must obtain your score and be sure that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three agencies. Also available are information and tools that 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 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.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about credit scores? Give us a call at 720-598-8300.

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