How FICO Credit Scores Are Calculated

Because we live in a computer-driven world, you're probably not surprised to hear that your ability to repay virtually any loan comes down to one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model 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, the differences aren't huge; each agency uses the following factors to build a credit score:

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

These factors are weighted differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most folks who want to get a mortgage these days score 620 or above.

FICO makes a big difference in interest rates

Did you know? 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.

Can I raise my credit score?

Is there any way to raise your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Know your FICO

In order to raise your score, you must have the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO credit score, sells credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. Also available are information and 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 all three agencies at AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.

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.

Want to know more about your FICO score? Call us: 5617752724.