How FICO Credit Scores Are Calculated

Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage loan comes down to a single number. The FICO score is compiled by credit agencies. They use the payment history of all of your loans: credit cards, mortgages, car/boat loans and others.

Each of the three credit agencies has its own formula for building your credit score. The original FICO was developed by Fair Isaac and Company. 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to determine your credit score:

  • Credit History - Have you had credit for years, or for a short time?
  • Payment History - Do you pay your bills on time?
  • Credit Card Balances - How many credit card accounts do you hold, and how much do you owe?
  • Inquiries on Your 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. Each formula produces a single number which may vary a a little by agency. FICO scores range from 300 to 800. Higher is always better. Most folks who want to get a mortgage loan have a score above 620.

Not just for qualifying

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 a better credit risk, and thus may qualify for a better mortgage rate.

Can I raise my FICO score?

What can you do to raise your FICO score? Very little in the short term. Since the FICO score is entirely based on a lifetime of credit history, it's hard to change it quickly. (Of course you can and should remove incorrect data on your credit report.)

How do I find out my credit score?

In order to raise your credit score, you must get the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that invented the first FICO score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three agencies. They also provide information and tools that can help you improve your credit score.

You can get a federally-mandated free credit report every year from the three major credit reporting 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 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: (302) 765-8089.

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