How FICO Credit Scores Are Calculated

Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage boils down to a single number. This score is compiled by credit reporting agencies. These agencies use the payment history from your various loans: credit cards, mortgages, car loans etcetera.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have a proprietary formula for building your 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, all of the agencies use the following to determine a credit score:

• Your Credit History - How many years have you had credit?
• Late Payments - Have you paid more than 30 days late, and how often?
• Credit Card Balances - How many accounts do you have, and how much do you owe on them?
• 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 a single number: your credit score. FICO scores range from 300 to 800. Higher is always better. Most home buyers have a score above 620.

Not just for qualifying

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.

Can I raise my FICO score?

Is it possible to improve your FICO score? Since the FICO score is entirely based on your lifelong credit history, it is difficult to change it quickly. You should, of course, 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 improve your FICO score, you must get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. They also provide helpful information and tools that help you improve your FICO score.

You can get a free credit report once a year from the three major credit reporting 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 information, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Give us a call: (281) 778-0805.