FICO - Your Credit Score

Since our world is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan comes down to a single number. Credit reporting agencies use your history of paying all types of loans in order to build this score.

Experian, TransUnion, and Equifax, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO 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 a score:

  • Credit History - How many years have you had credit?
  • Late Payments - Have you paid more than 30 days late, and how often?
  • Your Credit Card Balances - How many accounts do you carry? How much do you owe?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers have a score above 620.

Your score affects how much you pay in interest every month

FICO 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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is entirely based on your lifelong credit history, it is hard to make a significant improvement in the number with quick fixes. (Of course you must appeal incorrect items on your credit report.)

How do I find out my credit score?

To improve your FICO score, you must have the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the first FICO credit score, offers FICO scores on myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide information and tools that can help you improve your credit score.

You can get a federally-mandated free credit report every year from the three major 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.

Armed with this information, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Call us: (303) 931-7879.

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