How FICO Credit Scores Are Calculated

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage loan boils down to just one number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

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; they all use the following to calculate your credit score:

  • Credit History - How long have you had credit?
  • Payment History - Do you have a history of late payments?
  • Credit Card Balances - How many accounts do you have, and how much do you owe on them?
  • Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Most home buyers will probably find their scores falling above 620.

Your FICO score greatly affects your monthly payment

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Can I improve my FICO score?

Is there any way to raise your credit score? Since the FICO score is based on your lifelong credit history, it's very hard to change it quickly. You must appeal for the credit agency to remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.

Know your FICO score

Before you can improve your credit score, you must obtain your score and make certain that the reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive to get your FICO score from all three agencies, along with your credit report. Also available are helpful information and tools that can help you understand how to improve your credit score.

You can get a free credit report once per year from the three major credit reporting agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and inexpensive.

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

Curious about credit scores? Call us: (860) 658-7100.

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