How FICO Credit Scores Are Calculated

Since we live in an automated society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. Credit reporting agencies use your payment history to build this score.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following factors to calculate your score:

  • Your Credit History - How many years have you had credit?
  • Payment History - Have you paid more than 30 days late?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The result is a single number: your FICO score. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Typical home buyers will likely find their scores between 620 and 800.

Not just for qualifying

Credit 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 FICO score

What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is built on your lifelong credit history, so it's not possible to raise it significantly in the short term. You must, of course, remove any incorrect reporting on your credit report; this is really the only "quick fix" for credit troubles.

Know your FICO

Before you can improve your credit score, you must obtain your score and ensure that the credit reports from each credit reporting agency are correct. Fair Isaac, the company that invented the first FICO credit score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three 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 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.

Now that you have all the facts, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about your FICO score? Call us at 7068605514.

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Augusta Mortgage Solutions

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141 North Belair Road Suite 102 NMLS# 149807
Evans, GA 30809-7431