How FICO Credit Scores Are Calculated
Because we live in a computer-driven society, it's probably not that surprising that your ability to repay virtually any loan comes down to one number.
Credit reporting agencies use your payment history to create this score.
Each of the three credit reporting agencies has its own 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 the formulas vary, the differences aren't huge; all of the agencies use the following to calculate a credit score:
- Credit History - How long have you had credit?
- Late 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 on them?
- Requests for Credit - How many times have you had your credit checked for a loan?
These factors are weighted slightly differently depending on which formula the agency uses. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher is always better. Typical home buyers will likely find their FICO scores falling between 620 and 800.
Your score greatly affects your interest rate
Did you know? 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 improve my FICO score?
What can you do about your FICO score? Unfortunately, not much. 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 on your credit report, which is the only "quick fix" for credit problems.
Getting your credit score
In order to raise your credit score, you must obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that offered the original FICO score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. They also provide information and tools that help you improve your FICO score.
You can get a federally-mandated free credit report once a year from the three major credit reporting agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and very inexpensive.
Armed with this info, you'll 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: 3038627760.