How FICO Credit Scores Are Calculated
 |
 |
||
 |
Are you looking for a mortgage? We can help! Call us at 800-374-0046. Ready to begin? Apply Here. | ||
| |||
| |||
Since we live in a computer-driven world, it should come as no surprise that your creditworthiness comes down to one number. The FICO score is created by credit agencies. These agencies use the payment history of your various loans: mortgages, car loans, credit cards, et cetera.
The three reporting agencies use slightly different formulas to build a credit score. The original FICO 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 from one agency to another, all of the agencies use the following to build your score:
- Credit History - Have you had credit for many years, or for a short time?
- Late Payments - Do you pay your bills on time?
- Credit Card Balances - How many credit card accounts do you have, 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. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is better. Most borrowers who want to get a mortgage loan in the current environment score 620 or above.
Credit scores make a big difference in interest rates
FICO 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.
Raising your FICO 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. (Of course you must appeal incorrect items on your credit report.)
Getting your FICO score
In order to raise your score, you must get the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are helpful information and online tools that can 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 the three major credit reporting 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 obtain the most favorable mortgage.
