How FICO Credit Scores Are Calculated

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Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to a single number. Credit reporting agencies use your payment history to create this score.

The three credit 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 the formulas vary, the differences aren't huge; they all use the following in building a score:

  • Your Credit History - Have you had credit for many years, or for a short time?
  • History of Payments - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts do you carry? How much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary a a little by agency. Credit scores can be as low as 300 and as high as 850. Higher scores are better. Most home buyers probably find their scores above 620.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your credit score

What can you do to improve your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect data from your credit report, which is the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your credit score, you have to know your score and make certain that the reports from each credit reporting agency are correct. Fair Isaac, the company that invented the first FICO score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. Also available are information and online tools that help you understand how to improve your FICO score.

You can get a free credit report once per year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

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

Curious about your FICO score? Call us: 855-375-1211.

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