How FICO Credit Scores Are Calculated

Since we live in an automated, it should come as no surprise that your creditworthiness boils down to one number. Credit reporting agencies use your loan payment history to create this score.

All three credit reporting 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 each of the models considers a range of data available in your credit report, the differences aren't huge; each agency uses the following factors to build your credit score:

• Credit History - Have you had credit for years, or for just a short time?
• Payment History - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers in the current environment have a score above 620.

Not just for qualifying

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?

What can you do to improve your FICO score? Very little in the short term. Because the FICO score is based on a lifetime of credit history, it's very difficult to make a significant change in the number with quick fixes. You should remove any incorrect data on your credit report; this is really the only "quick fix" for credit problems.

Know your FICO

Before you can improve your credit score, you have to know your score and be sure that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, offers scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three reporting agencies. They also provide helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report every year from the three major credit reporting agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Armed with this information, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Want to know more about your credit score? Call us at 7184417000.