How FICO Credit Scores Are Calculated

Because we live in a computer-driven society, you're probably not surprised to hear that your creditworthiness boils down to one number. This score is created by credit agencies. These agencies use the payment history of all of your loans: mortgages, car/motorcycle loans, credit cards, and others.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO score 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, all of the agencies use the following to calculate a credit score:

• Your Credit History - How long have you had credit?
• History of Payments - Have you paid more than 30 days late?
• Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is a single number: your FICO score. Credit scores range from 300 to 800. Higher is always better. Most borrowers who want to get a mortgage loan these days score 620 or above.

FICO makes a huge difference in your interest rate

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.

Can I raise my credit score?

How can you raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.

How do I find out my FICO score?

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

You can get a free credit report once per year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.

Now that you have all the facts, you will 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 8102292820.