How FICO Credit Scores Are Calculated

Because we live in a computer-driven society, you’re probably not surprised to hear that your creditworthiness comes down to 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 Co originally developed this score. 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, the differences aren’t huge; they all use the following to calculate a credit score:

  • Credit History – How long have you had credit?
  • Late Payments – Have you paid more than 30 days late?
  • Credit Card Balances – How many accounts do you hold? How much do you owe?
  • Requests for Credit – How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Most home buyers these days have a score above 620.

You can get a free credit report once a year from the three major agencies when you visit While this report does not include a free credit score, the cost to “upgrade” your report to include a credit score is very reasonable.

Credit scores make a huge 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.

Improving your score

Unfortunately, there isn’t a lot you can do to immediately improve your credit score. Since the credit score is entirely based on your lifelong credit history, it is difficult to change it quickly. You should appeal for the credit agency to remove any incorrect data from your credit report; this is really the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your credit score, you must get your score and ensure that the reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, sells scores on its website:

It’s inexpensive to quickly get your FICO 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.