How FICO Credit Scores Are Calculated

Since we live in a computer-driven society, you're probably not surprised to hear that your creditworthiness comes down to one number. Credit reporting agencies use your history of paying all types of loans in order to compile this score.

The three 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; they all use the following factors in building a 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 credit card 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?

These factors are weighted slightly differently depending on the formula being used. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most people who want to get a mortgage in the current environment have a score above 620.

Credit scores make a difference in interest rates

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

Is there any way to improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should remove incorrect data on your credit report.)

Know your FICO

Before you can improve your FICO score, you must get your score and make sure that the credit reports from each 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 as well as 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 federally-mandated free credit report every year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

Armed with this information, 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? Give us a call at 3173854768.