How FICO Credit Scores Are Calculated

Since we live in an automated, you're probably not surprised to hear that your ability to repay virtually any loan comes down to a single number. Credit reporting agencies use your history of paying all types of loans in order to compile your FICO score.

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, all of the agencies use the following to determine a credit score:

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

These factors are weighted differently depending on the formula being used. The results are added up and distilled into a single number. FICO scores range from 300 to 800. Higher is always better. Most folks who want to get a mortgage loan score 620 or above.

Your credit score affects your monthly payment

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.

Improving your score

What can you do about your FICO score? Very little in the short term. Because the score is based on a lifetime of credit history, it is hard to significantly improve the score with quick fixes. You must remove any incorrect data from your credit report, which is the only "quick fix" for credit troubles.

How do I find out my credit score?

Before you can improve your FICO score, you must know your score and be sure that the credit reports from each reporting agency are correct. Fair Isaac, the corporation that offered the original FICO score, offers FICO scores on its website: myFICO.com. For a reasonable fee, you can quickly get your FICO from all three reporting agencies, along with your credit report. Also available are information and online 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. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and very inexpensive.

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

Want to know more about credit scores? Give us a call at 305-967-7200.