How FICO Credit Scores Are Calculated

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan comes down to just one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. . 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following factors to calculate your credit score:

• Your Credit History - How long have you had credit?
• Late Payments - Do you have any payments later than 30 days?
• Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers will likely find their FICO scores between 620 and 800.

Your credit score greatly affects how much you pay in interest every month

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

Is there any way to raise your credit score? So called "credit repair" companies advertise quick fixes, but the score is calculated from your lifetime credit history, so it's not possible to raise it significantly in the short term. (Of course you can and should remove incorrect data on your credit report.)

Getting your credit score

In order to raise your FICO score, you've got to get the credit reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that offered the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. Also available are information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from the three major credit reporting agencies by visiting 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'll be a more informed consumer and you'll be better positioned to get the most favorable mortgage.

Curious about your FICO score? Give us a call: 7205988300.