How FICO Credit Scores Are Calculated

Because we live in an automated, it's probably not that surprising that your ability to repay virtually any loan boils down to one number. Credit reporting agencies use your payment history to create a FICO score.

The three agencies use slightly different formulas to build a credit score. The original FICO model was developed by Fair Isaac and Company. 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, the differences aren't huge; they all use the following factors in calculating a credit score:

  • Your Credit History - Have you had credit for many years, or for just a short time?
  • Payment History - Do you pay your bills on time?
  • Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
  • Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of giving you a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which varies slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher is better. Most borrowers who want to get a mortgage these days 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.

Can I raise my credit score?

Is there any way to raise your FICO score? Because the credit score is based on your lifelong credit history, it is difficult to significantly improve the number with quick fixes. (Of course you can and should remove incorrect data on your credit report.)

How do I find out my credit score?

Before you can improve your score, you have to obtain your score and make sure that the reports from each agency are correct. Fair Isaac, the corporation that offered the first FICO credit score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. They also provide helpful information and online tools that can help you understand how to improve your FICO score.

You can get a federally-mandated free credit report once per year from all three credit reporting agencies by visiting 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 information, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about credit scores? Give us a call: (562) 693-5048.

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