How FICO Credit Scores Are Calculated

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Since we live in a computer-driven world, you're probably not surprised to hear that your ability to repay your mortgage loan boils down to one number. This score is built by credit reporting agencies. They use the payment history from your various loans: mortgages, car loans, credit cards, and others.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 build a credit score:

• Your Credit History - How long have you had credit?
• History of Payments - Do you have a history of late payments?
• Your Credit Card Balances - How many accounts do you hold, and how much do you owe on them?
• Requests for Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers likely find their scores falling above 620.

FICO makes a big difference in your interest rate

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.

Raising your FICO score

What can you do to raise your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is formulated from your lifelong credit history, so it's not possible to raise it significantly in the short term. You should, of course, remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

Before you can improve your score, you must get your score and ensure that the reports from each credit reporting 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 reports from all three reporting agencies. Also available are information and tools that can 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 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.

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? Give us a call: (926) 228-1944.