How FICO Credit Scores Are Calculated

Because our society is so computer-driven, it should come as no surprise that your creditworthiness boils down to one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, diced, 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. The original FICO score was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, each agency uses the following to determine your score:

  • Credit History - How many years have you had credit?
  • Late Payments - Do you have a history of late payments?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe on them?
  • Credit Inquiries - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted slightly differently depending 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 home buyers these days have a score above 620.

Credit scores make a big difference in interest rates

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?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Despite what you hear from "credit repair" companies, the FICO score is based on your lifetime credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

Getting your FICO score

Before you can improve your credit score, you have to obtain your score and ensure that the reports from each agency are correct. Fair Isaac, the company that invented the original FICO score, sells scores on myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

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

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

Curious about credit scores? Call us: 6307173600.


Ashok Lakshmanan

PMSI SERVING IL, TN, TX AND FL.

1776 Legacy Circle Suite # 107
Naperville, IL 60563