How FICO Credit Scores Are Calculated

Since we live in an automated world, it's not surprising that your ability to repay your mortgage boils down to a single number. This score is built by credit reporting agencies. These agencies use the payment history from all of your loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

The three reporting agencies use slightly different formulas to build a credit score. The original FICO model 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, all of the agencies use the following to determine a credit score:

  • Credit History - How many years 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 hold, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on the formula being used. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is better. Typical home buyers will probably find their FICO scores above 620.

Your score affects how much you pay in interest every month

Did you know? 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 FICO score

How can you raise your FICO score? Because the score is entirely based on your lifelong credit history, it's very hard to make a significant change in the score with quick fixes. (Of course you must appeal incorrect items on your credit report.)

Know your FICO score

In order to raise your credit score, you've got to get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the first FICO score, sells credit scores on its website: myFICO.com. For a reasonable fee, you can get your FICO score from all three agencies, along with your credit report. Also available are information and tools that help you improve your credit score.

You can get a free credit report every year from the three major credit reporting agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

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

Want to know more about credit scores? Give us a call: 7068605514.

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