How FICO Credit Scores Are Calculated

Because our world is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan boils down to one number. This score is created by credit agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.

The three credit reporting agencies use slightly different formulas to build 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; all of the agencies use the following factors in calculating 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?
• Balances on your Credit Cards - How many accounts? How much do you owe?
• Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher scores are better. Most home buyers will probably find their credit scores above 620.

FICO makes a difference in interest rates

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

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. So called "credit repair" companies advertise quick fixes, but the score is based on your lifetime credit history, so you can't turn it around right away. (Of course you must remove incorrect data on your credit report.)

How do I find out my FICO score?

Before you can improve your score, you must obtain your score and be sure that the reports from each agency are correct. 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 credit reports from all three credit reporting agencies. Also available are 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 once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your credit score? Give us a call at 2146635355.