How FICO Credit Scores Are Calculated

Because our world is so computer-driven, it should come as no surprise that your creditworthiness comes down to one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

TransUnion, Equifax, and Experian, the three major credit reporting agencies, each have their own proprietary formula for building 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 these methods vary from one agency to another, the differences aren't huge; all of the agencies use the following factors in building your credit score:

• Credit History - Have you had credit for many years, or for a short time?
• History of Payments - Do you have any payments later than 30 days?
• Credit Card Balances - How many accounts do you carry? How much do you owe on your accounts?
• Inquiries on Your Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are weighted differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores can be as low as 300 and as high as 800. Higher is better. Most home buyers these days have a score above 620.

Your FICO score affects your monthly payment

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 credit score

How can you improve your FICO score? Because the credit score is based on a lifetime of credit history, it is hard to make a significant change in the score with quick fixes. You must appeal for the credit agency to remove any incorrect data from your credit report, which is the only "quick fix" for credit problems.

Getting your FICO score

To raise your score, you've got to have the reports that are used to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO score, sells FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. They also provide helpful information and tools that help you improve your credit score.

You can get a federally-mandated free credit report once per year from the three major credit reporting agencies when you visit 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 will be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Call us at 9043423622.