How FICO Credit Scores Are Calculated

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Since we live in an automated world, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit reporting agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While these methods vary from one agency to another, the differences aren't huge; they all use the following in building your credit score:

• Credit History - Have you had credit for years, or for just a short time?
• Payment History - Have you paid more than 30 days late, and how often?
• Your Credit Card Balances - How many accounts? How much do you owe on your accounts?
• Requests for Credit - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. The result is one number. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most folks getting a mortgage loan in the current environment have a score 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 probably a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my FICO score?

Is there any way to improve your credit score? Because the FICO score is entirely based on your lifelong credit history, it's very hard to change it quickly. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report; this is really the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your FICO score, you must know your score and make certain that the 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 quickly get your FICO from all three reporting 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 agencies when you visit AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.

Curious about your FICO score? Call us at 916.933.7340.