How FICO Credit Scores Are Calculated

Since we live in an automated, it's probably not that surprising that your ability to repay virtually any loan boils down to one number. Credit reporting agencies use your history of paying loans to build a FICO score.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary formula for building a 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 these methods vary from one agency to another, the differences aren't huge; they all use the following factors to calculate a credit score:

• Credit History - How many years have you had credit?
• History of Payments - Do you have a history of late payments?
• Balances on your Credit Cards - How many accounts do you hold? How much do you owe on your accounts?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. FICO scores range from 300 to 800. Higher is always better. Most home buyers these days have a score above 620.

Your score affects your monthly payment

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

Is it possible to improve your FICO score? Since the FICO score is based on a lifetime of credit history, it's very hard to change it quickly. You must, of course, remove any incorrect reporting on your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

Before you can improve your FICO score, you must know your score and be sure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that offered the first FICO score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three 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 all three agencies at 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.

Want to know more about your FICO score? Give us a call: 4056158543.