How FICO Credit Scores Are Calculated

Since we live in a computer-driven world, it's probably not that surprising that your creditworthiness comes down to one number. This score is created by credit reporting agencies. They use the payment history of your various loans: mortgages, car/motorcycle loans, credit cards, and others.

Each of the three credit agencies has its own formula for building your 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, the differences aren't huge; each agency uses the following factors in calculating your score:

• Credit History - Have you had credit for many years, or for a short time?
• History of Payments - Have you paid more than 30 days late, and how often?
• Your Credit Card Balances - How many accounts do you hold, and how much do you owe?
• Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher scores are better. Typical home buyers likely find their credit scores falling between 620 and 800.

Your credit score affects your interest rate

Did you know? 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.

Improving your score

What can you do about your FICO score? Very little in the short term. Because the credit score is entirely based on a lifetime of credit history, it is hard to significantly improve the number with quick fixes. You should, of course, remove any incorrect reporting from your credit report, which is the only "quick fix" for credit troubles.

Know your FICO score

To raise your credit score, you must get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that invented the original FICO credit score, sells credit scores on myFICO.com. For a reasonable fee, you can quickly get your FICO score from all three agencies, along with your credit report. They also provide information and online tools that can help you improve your FICO score.

You can get a federally-mandated free credit report every year from the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your FICO score? Give us a call at 5122916100.