How FICO Credit Scores Are Calculated

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage boils down to just one number. Credit reporting agencies use your history of paying loans in order to build a FICO 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 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 to calculate your score:

  • Credit History - How long have you had credit?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted differently depending on the formula being used. The result is a single number: your credit score. Credit scores range from 300 to 800. Higher is better. Most home buyers these days have a score above 620.

Credit scores make a big difference in interest rates

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

Raising your FICO score

What can you do to improve your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)

Know your FICO score

Before you can improve your FICO score, you have to obtain your score and be sure that the reports from each credit reporting 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. They also provide helpful information and online tools that help you improve your FICO score.

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

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

Curious about your credit score? Call us at 610-565-3600.