How FICO Credit Scores Are Calculated

Since we live in a computer-driven world, you're probably not surprised to hear that your ability to repay virtually any loan boils down to one number. The FICO score is compiled by credit agencies. These agencies use the payment history of your various loans: mortgages, car loans, credit cards, etcetera.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have a proprietary formula for building a credit score. Fair Isaac and Cooriginally developed this score. . 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:

• Your Credit History - How long have you had credit?
• Payment History - Do you pay your bills on time?
• Credit Card Balances - How many accounts do you hold? How much do you owe on your accounts?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most folks getting a mortgage in the current environment have a score above 620.

Your FICO score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

What can you do about your FICO score? Very little in the short term. Since the FICO score is entirely based on your lifelong credit history, it's hard to change it quickly. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my credit score?

To improve your FICO score, you've got to have the credit reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the first FICO credit score, offers scores on myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. They also provide helpful information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from the three major agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Armed with this info, 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: 2037296681.