How FICO Credit Scores Are Calculated

Since our society is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan boils down to one number. The years of paying your various bills: your mortgage, car payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary formula for building 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 the formulas vary from one agency to another, each agency uses the following to determine a credit score:

• Your Credit History - Have you had credit for years, or for a short time?
• Late Payments - Do you have a history of late payments?
• Your Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
• Requests for Credit - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. Each formula produces a single number which may vary a a little from one agency to another. FICO scores range from 300 to 800. Higher is always better. Most home buyers have a score above 620.

Not just for qualifying

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

Raising your credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

How do I find out my credit score?

Before you can improve your credit score, you have to know your score and be sure that the credit 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, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide helpful information and tools that help you understand how to improve your credit score.

You can get a federally-mandated free credit report once per year from all three agencies when you visit 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 will be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about your FICO score? Call us: (512)-733-4868.