How FICO Credit Scores Are Calculated

Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan boils down to just one number. The FICO score is built by credit reporting agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car/boat loans and others.

The three credit reporting agencies use slightly different formulas to build a credit score. The original FICO 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 calculate a score:

  • Your Credit History - How many years have you had credit?
  • History of Payments - Do you have a history of late payments?
  • Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these is assigned a value and a weight. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher scores are better. Most folks who want to get a mortgage score 620 or above.

FICO makes a big difference in your interest rate

Credit 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.

Raising your credit score

What can you do to improve your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the score is based on your lifelong credit history, so you can't turn it around right away. You must, of course, remove any incorrect data on your credit report; this is really the only "quick fix" for credit troubles.

Getting your FICO score

Before you can improve your credit score, you must know your score and make certain that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. Also available are helpful information and tools that help you understand how to improve your FICO score.

You can get a federally-mandated 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.

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.

Curious about your FICO score? Call us: 844-773-1401.

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