How FICO Credit Scores Are Calculated

Since our world is so computer-driven, you're probably not surprised to hear that your ability to repay your mortgage loan comes down to one number. Credit reporting agencies use your loan payment history to create your FICO score.

Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, each agency uses the following to build your credit score:

  • Credit History - How long have you had credit?
  • Late Payments - Do you have a history of late payments?
  • Your Credit Card Balances - How many accounts do you have, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly by agency. Credit scores range from 300 to 800. Higher is better. Most home buyers will probably find their credit scores between 620 and 800.

Your credit score greatly affects your interest rate

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.

Raising your FICO score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is based on your lifelong credit history, it's hard to change it quickly. You should appeal for the credit agency to remove any incorrect reporting on your credit report; this is really the only "quick fix" for credit troubles.

Getting your credit score

Before you can improve your score, you have to know your score and ensure 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 get your FICO score from all three agencies, along with your credit report. Also available are information and online tools that 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 agencies at 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'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Call us: (443) 619-7900.

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