How FICO Credit Scores Are Calculated

Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit agencies has its own formula for building your credit score. The original FICO was developed by Fair Isaac and Company. 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:

  • Credit History - Have you had credit for many years, or for a short time?
  • Late Payments - Do you have any payments later than 30 days?
  • Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little by agency. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most borrowers getting a mortgage loan score 620 or above.

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.

Improving your score

Is there any way to raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must appeal incorrect items on your credit report.)

Know your FICO score

To improve your credit score, you've got to have the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO score, offers scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. They also provide information and tools that can help you understand how to improve your FICO score.

You can get a federally-mandated free credit report once per year from the three major 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.

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 credit scores? Call us: 435-755-6622.