How FICO Credit Scores Are Calculated

Since we live in an automated, it's probably not that surprising that your ability to repay virtually any loan comes down to a single number. Credit reporting agencies use your history of paying loans to build a FICO score.

The three reporting agencies use slightly different formulas to build a 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 determine your score:

  • Your Credit History - How many years have you had credit?
  • Late Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
  • Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. 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 getting a mortgage loan score 620 or above.

Not just for qualifying

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.

Improving your score

How can you improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You should appeal for the credit agency to remove any incorrect reporting on your credit report, which is the only "quick fix" for credit troubles.

Know your FICO

Before you can improve your score, you must get your score and ensure that the reports from each reporting agency are correct. Fair Isaac, the company that offered the original FICO credit score, sells FICO scores on myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. Also available are information and online tools that help you understand how to improve your FICO score.

You can get a federally-mandated free credit report every year from the three major agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is fast and inexpensive.

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.

Curious about your credit score? Call us: 562 320-0510.

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