How FICO Credit Scores Are Calculated

Because we live in a computer-driven society, you're probably not surprised to hear that your ability to repay your mortgage comes down to one number. Credit reporting agencies use your history of paying loans in order to build your FICO score.

Each of the three credit agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While each of the models considers a range of data available in your credit report, 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 years, or for a short time?
  • History of Payments - 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?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most home buyers will probably find their FICO scores above 620.

Your score affects your interest rate

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.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the score is entirely based on a lifetime of credit history, it's very difficult to change it quickly. You must, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

How do I find out my FICO score?

To raise your FICO score, you've got to obtain the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the corporation that offered the original FICO credit score, sells FICO scores on myFICO.com. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that can help you improve your credit score.

You can get a free credit report once a year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

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

Curious about your credit score? Call us: 720-598-8300.

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