FICO - Your Credit Score

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Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. Credit reporting agencies use your history of paying all types of loans to create this score.

The three reporting agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . 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 calculate a score:

  • Your Credit History - How long have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
  • 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. FICO scores can be as low as 300 and as high as 850. Higher is better. Typical home buyers will probably find their credit scores between 620 and 850.

FICO makes a big difference in interest rates

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.

Can I raise my credit score?

Is there any way to improve your credit score? Despite what you hear from "credit repair" companies, the FICO score is formulated from your lifelong credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

In order to raise your credit score, you've got to get 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. For a reasonable fee, you can get your FICO from all three agencies, along with your credit report. They also provide information and online tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once per year from all three 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 will 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 at (720) 317-2500.

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