How FICO Credit Scores Are Calculated

Because we live in a computer-driven world, it's probably not that surprising that your creditworthiness comes down to one number. This score is compiled by credit reporting agencies. These agencies use the payment history of your various loans: mortgages, car/motorcycle loans, credit cards, etcetera.

The three reporting agencies use slightly different formulas to build a 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 each of the models considers a range of data available in your credit report, each agency uses the following to determine a credit score:

  • Credit History - How many years have you had credit?
  • History of Payments - Do you have any payments later than 30 days?
  • Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
  • Requests for Credit - How many times have lenders pulled your credit for the purpose of lending you money?

These factors are assigned weights based on the formula being used. The result is one number. Credit scores can be as low as 300 and as high as 800. Higher is always better. Typical home buyers likely find their credit scores above 620.

Not just for qualifying

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.

Can I raise my credit 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 formulated from your lifelong credit history, so it's not possible to raise it significantly in the short term. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.

Know your FICO

Before you can improve your score, you must know your score and be sure that the credit reports from each agency are correct. Fair Isaac, the company that offered the original FICO credit score, sells credit scores on its website: myFICO.com. It's inexpensive to quickly get your FICO from all three agencies, along with your credit report. They also provide information and online tools that can help you improve your credit score.

You can get a free credit report every year from all three credit reporting agencies when you visit 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.

Curious about credit scores? Give us a call at (772) 252-6724.

Got a Question?

Do you have a question? We can help. Simply fill out the form below and we'll contact you with the answer, with no obligation to you. We guarantee your privacy.

Your Information
Your Question