How FICO Credit Scores Are Calculated

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Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage comes down to a single number. Credit reporting agencies use your history of paying all types of loans in order to compile a FICO score.

The three agencies use slightly different formulas to build 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 the formulas vary from one agency to another, the differences aren't huge; each agency uses the following to calculate a credit score:

• Your Credit History - How long have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many accounts do you have, and how much do you owe?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on which formula the agency uses. The results are added up and distilled into a single number. Credit scores range from 300 to 800. Higher scores are better. Most folks getting a mortgage in the current environment have a score above 620.

Not just for qualifying

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

How can you improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.

How do I find out my credit score?

To improve your FICO score, you must have the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that offered the first FICO credit score, sells credit scores on myFICO.com. For a reasonable fee, you can get your FICO score from all three reporting agencies, along with your credit report. Also available are information and online tools that can help you improve your FICO score.

You can get a federally-mandated free credit report every year from the three major agencies by visiting 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about your credit score? Call us: 410.461.4043.