How FICO Credit Scores Are Calculated

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to just one number. The FICO score is compiled by credit reporting agencies. They use the payment history from your various loans: mortgages, car/motorcycle/boat loans, credit cards, and others.

Each of the three credit agencies has its own formula for building your 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, the differences aren't huge; each agency uses the following factors to build a score:

• Credit History - How long have you had credit?
• History of Payments - Have you paid more than 30 days late, and how often?
• Credit Card Balances - How many accounts? How much do you owe?
• Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. Each formula produces a single number which may vary slightly from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Most people who want to get a mortgage loan score 620 or above.

Your FICO score greatly affects your interest rate

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my FICO score?

What can you do to improve your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should have incorrect items removed from your credit report.)

Know your FICO score

To improve your FICO score, you must have the reports that the agencies use to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the first FICO credit score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three credit reporting agencies. They also provide information and online tools that can help you improve your credit score.

You can get a federally-mandated free credit report once per year from all three credit reporting agencies at AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to get the right mortgage for you.

Curious about credit scores? Call us at (773) 774-9040 Ext 121.