Scoring your Credit - How's your FICO?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage loan comes down to just one number. This score is created by credit reporting agencies. They use the payment history of your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

Each of the three credit reporting agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While the formulas vary, the differences aren't huge; all of the agencies use the following in calculating your score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Late Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.

Credit scores make a huge 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 improve my FICO 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 must, of course, appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

How do I find out my credit score?

Before you can improve your FICO score, you must obtain your score and ensure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, sells scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. They also provide helpful 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 the three major agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Want to know more about your FICO score? Call us at (303) 931-7879.

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