You Credit Score: How's Your FICO?

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Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. The FICO score is created by credit agencies. They use the payment history from your various loans: credit cards, mortgages, car loans 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. 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, each agency uses the following to determine a score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Do you pay your bills on time?
  • Balances on your Credit Cards - How many accounts do you carry? How much do you owe?
  • Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is a single number: your credit score. FICO scores can be as low as 300 and as high as 850. Higher is better. Most home buyers in the current environment have a score above 620.

Your FICO score affects how much you pay in interest every month

Credit 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.

Raising your credit score

What can you do to improve your FICO score? Unfortunately, not much. Since the FICO score is entirely based on your lifelong credit history, it's very hard to significantly improve the number with quick fixes. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

In order to raise your score, you must have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are information and tools that can help you understand how to improve your FICO 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.

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

Curious about your FICO score? Call us at 720-253-7070.