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 loan boils down to one number. Credit reporting agencies use your history of paying loans to create a FICO score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at 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 the formulas vary from one agency to another, all of the agencies use the following to calculate your score:

• Your Credit History - How long have you had credit?
• Payment History - Have you paid more than 30 days late, and how often?
• Credit Card Balances - How many accounts do you hold, and how much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly by agency. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers these days have a score above 620.

Your FICO score 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.

Can I raise my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should appeal incorrect items on your credit report.)

How do I find out my credit score?

Before you can improve your credit score, you have to obtain your score and be sure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful 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 per year from all three agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

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

Curious about your credit score? Give us a call: 3217777277.