You Credit Score- How's Your FICO?

Because our society is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan boils down to a single number. Credit reporting agencies use your loan payment history to create a FICO score.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary formula for building a credit 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to build a credit score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted a little bit differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher is better. Most home buyers have a score above 620.

Not just for qualifying

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 FICO score

What can you do to raise your FICO score? Unfortunately, not much. 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 reporting on your credit report, which is the only way to quickly improve your credit score.

Getting your credit score

To raise your credit score, you must get the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. They also provide information and online tools that help you improve your FICO score.

You can get a federally-mandated free credit report once per 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'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

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

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