How FICO Credit Scores Are Calculated

Since our world is so automated, you're probably not surprised to hear that your ability to repay your mortgage loan comes down to a single number. This score is created by credit reporting agencies. They use the payment history of your various loans: credit cards, mortgages, car loans etcetera.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building your credit score. The original FICO score 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, the differences aren't huge; each agency uses the following in building a score:

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

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is better. Most borrowers who want to get a mortgage loan these days have a score above 620.

Not just for qualifying

Did you know? 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.

Can I raise my FICO score?

Is there any way to raise your FICO score? Because the FICO score is entirely based on a lifetime of credit history, it's very difficult to change it quickly. (Of course you must appeal incorrect items on your credit report.)

Getting your credit score

Before you can improve your credit score, you must know your score and ensure that the credit reports from each reporting agency are correct. 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 along with reports from all three agencies. Also available are helpful information and online tools that can help you improve your FICO score.

You can get a federally-mandated free credit report every year from all three credit reporting agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.

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

Curious about your FICO score? Call us at 3038627760.