How FICO Credit Scores Are Calculated

Because our society is so automated, it's probably not that surprising that your creditworthiness boils down to one number. Credit reporting agencies use your history of paying all types of loans in order to compile your FICO score.

All three credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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, all of the agencies use the following to build your credit score:

• Your Credit History - How long have you had credit?
• Payment History - Do you have any payments later than 30 days?
• Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
• Requests for Credit - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which may vary a a little from one agency to another. FICO scores range from 300 to 800. Higher is better. Most folks getting a mortgage score 620 or above.

Not just for qualifying

Did you know? 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.

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the FICO score is based on a lifetime of credit history, it's difficult to change it quickly. (Of course you can and should have incorrect items removed from your credit report.)

How do I find out my FICO score?

Before you can improve your credit score, you must know your score and make certain that the reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO score, sells FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three reporting agencies. Also available are helpful information and tools that help you understand how to improve your credit score.

You can get a free credit report every year from all three agencies at AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Want to know more about your FICO score? Give us a call at 626-363-9246.