Scoring your Credit - How's your FICO?

Because our society is so automated, it should come as no surprise that your ability to repay your mortgage loan boils down to one number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary from one agency to another, the differences aren't huge; all of the agencies use the following in calculating your credit score:

  • Credit History - How many years have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted differently depending on which formula the agency uses. The result is a single number: your credit score. 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.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Is there any way to improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

Know your FICO

Before you can improve your FICO score, you must know your score and ensure that the credit reports from each reporting agency are correct. Fair Isaac, the company that invented the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. They also provide information and online tools that help you understand how to improve your credit score.

You can get a free credit report every year from all three agencies by visiting 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 most favorable mortgage.

Want to know more about credit scores? Give us a call at (303) 931-7879.

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