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Understanding
FICO Credit
Scores
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THERE ARE MANY CREDIT SCORING MODELS USED
IN DETERMINING CREDIT WORTHINESS.
Each reporting agency develops different models for different purposes.
The information on this page should not be construed as the most current or even
accurate. It is likely that the following information may not apply to your situation or it
may be out of date. Credit scoring is a dynamic process that is constantly improving
with new technology. The purpose is to show just some of the basic mechanics involved
in arriving at a credit score for a home loan.
This page is a generic historical view of the credit scoring system used in the mortgage
industry. This is not the same system used for the auto industry or the retail version of
consumer credit reports. The credit reports ordered directly by consumers uses a
similar system that may not always reflect the exact same score as the score given to
mortgage companies. Recently a borrower ordered their own consumer credit report
online and obtained three scores that were much higher than our credit scores obtained
during the same week. Each model is different.
The following chart shows an example of the factors and points used in calculating your
credit score. Each reporting agency uses their own proprietary system of scoring. It is
written that credit scores in the past could range from 250 to 900 depending on the
credit reporting agency and type of credit report required. The "PLUS SCORE"
developed by Experian, we are told ranges from 330-830.
The system we follow; Fair Isaac, "FICO"
- the scores currently range from 300 to 850.
CREDIT SCORING CHART
Experian
Trans
Union
Equifax
XPN
TU or TRU
EFX
Trade Names variations for scoring systems
Fair Isaac
New
Empirica
Trade Names variations for scoring systems
FICO
FICO
Classic 98
Amount owed on accounts is too high
1
1
1
Delinquency on Accounts
2
2
2
Too few bank revolving accounts
3
N/A
3
Too many bank or national revolving
accounts
4
N/A
4
Too many accounts with balances
5
5
5
Consumer finance accounts
6
6
6
7
7
7
8
8
8
The big three credit reporting agencies
Initials of Big Three Credit Reporting Agencies
"A" Paper
borrowers will
have most
factors from this
range and
occasionally,
some from
bottom range.
Account payment history too new to
rate
Too many recent inquiries last 12
months
Too many accounts opened in last 12
months
Proportion of balances to credit limit
too high
Amount owed on revolving accounts is
too high
Length of revolving credit history is
too short
Time since delinquent is too recent or
unknown
9
9
9
10
10
10
11
11
11
12
12
12
13
13
13
Length of credit history is too short
14
14
14
15
15
15
16
16
16
17
17
17
18
18
18
19
27
19
20
20
20
21
21
21
22
22
22
N/A
N/A
-23
24
24
24
33
33
33
32
4
32
Lack of recent bank revolving
information
Lack of recent revolving account
information
No recent non-mortgage balance
information
Number of accounts with delinquency
"B" Paper
borrowers might
have several
factors from this
range and some
from top range
as well.
Facta
Beacon
5.0
Too few accounts currently paid as
agreed
Time since derogatory public record or
collection
Amount past due on accounts
Serious derogatory public record or
collection
Too many bank or revolving accts with
balances
No recent revolving balances
Proportion of balance to loan amounts
too high
Lack of recent installment loan
information
Date of last inquiry too recent
N/A
19
N/A
Time since last account opening too
short
30
30
30
Number of revolving accounts
26
26
26
Number of bank revolving or revolving
accounts
Number of established accounts
No recent bankcard balances
Too few accounts with recent payment
information
N/A
26
N/A
28
28
28
N/A
29
N/A
31
N/A
31
Fico Scoring Explanation
The agencies use a complex formula that references the points for each factor shown
above that applies to your credit.
Borrowers with perfect credit will still have deductions. The credit bureaus do not
disclose the entire process of calculating your credit score.
The sample factors below are the only part of the formula that is publicly disclosed.
Mortgage credit reports usually show the top four factors.
A mortgage lender will look at the section with
the credit scores and pick the middle number.
"High, Low, Middle."
Not an average of the three ... the middle score.
This is your score for home loan purposes. The middle score in this sample below is 769.
This is an example of excellent credit.
This is a sample of the bureau score information
on a typical credit report
It may include a list of top four factors in calculating your score
Credit Bureau Source,
Credit Score
XPN - Experian / Fair, Isaac Model 780
-10
-14
-08
-09
TUC - Trans Union / New Empirica 761
-05
-28
-10
-12
< Low Score
Too many accounts with balances
Number of established accounts
Proportion of balances to credit limit too high
Length of revolving credit history is too short
EFX - Facta Beacon 769
-04
-10
-05
-32
< High Score
Proportion of balances to credit limit too high
Length of credit history is too short
Too many recent inquiries last 12 months
Too many accounts opened in last 12 months
Too many bank or national revolving accounts
Proportion of balances to credit limit too high
Too many accounts with balances
Lack of recent installment loan information
< Middle Score
The following credit bureaus provide the credit scores to
mortgage lenders:
Addresses for retail or other industry inquiries may be different.
Experian
P.O. Box 2002
Allen, TX 75013-3742
(888) 397-3742
Name of Score: EXPERIAN/EXPERIAN/FAIR, ISAAC MODEL/ FICO
Range: 250-900 (Old information/ not verified)
Name of Score: FICO
Range: 300-850 (Old information/ not verified)
Name of Score: PLUS SCORE (consumer version developed by Experian)
Range: 330-830 (From recent consumer credit report disclaimer)
Trans Union
P.O. Box 1000
Chester, PA 19022
(800) 916-8800
Name of Score: TRANSUNION/FICO CLASSIC 98/ old name, New Empirica
Range: 336-843 (Old information/ not verified)
Equifax
P.O. Box 740243
Atlanta, GA 30374
(800) 685-1111
Name of Score: EQUIFAX/FACTA BEACON 5.0
Range: 300-850 (Old information/ not verified)
What is a Credit Score?
A credit score is a rating used by a lender to help determine whether you qualify for a
particular credit card, loan, or service. Based on information in your credit file, the
credit reporting agency analyzes your information using a complex mathematical model
to yield your credit score. Most credit scores estimate the risk a company incurs by
lending you money or providing you with a service -- specifically, the likelihood that
you'll fail to make payments in the next two to three years.
The higher the score, the less risk you represent.
Your score is calculated by a mathematical equation that evaluates many types of
information found in the credit file. Many different formulas are used to calculate credit
scores, but most are based on the following factors, which each scoring model weighs
differently:
Payment history
If you have a habit of late payments on your current and past credit accounts it will
lower your score.
Public records
Your public record such as bankruptcies, judgments, and collection items may lower
your score.
Amount owed
Owing too much will lower your score, especially if you're approaching your total credit
limit.
Length of credit history
In general, a longer credit history is better.
New accounts
Opening multiple new accounts in a short period of time may lower your score.
Inquiries
Whenever someone else gets your credit report -- a lender, landlord, or insurer, for
example -- an inquiry is recorded on your credit report. A large number of recent
inquiries may lower your score.
Accounts in use
The presence of too many open accounts can lower your score, whether you're using
the accounts or not.
FICO SCORE Formula
We recently read a report that may give you an insight to the calculations in your score.
The following information may be considered an illustration of the complexity used in
credit analysis and not a "how-to" blue print for improving your scores.
We understand from one source that, Fair Isaac divides various portions of your credit
history from the big three credit bureaus into five large categories. The categories may
contain data with up to twenty-two different pieces of on-going information from each
person with a credit history.
Mathematical formulas divide the importance of the information into a final score with a
break down similar to this:
Your past record or history of paying your credit cards on time is vary important and
represents up to 35% of the final score.
The amount of debt represents around 30% of your score.
The length of your credit history that can be verified adds up to 15% of your score.
The amount of recent or new credit will factor about 10% of your score.
We don't know how much weight is given to paying your mortgage on time compared to
paying your car or credit card on time. We have read that the
types of credit used impacts the score by about 10%.
The good news for many borrowers, is that your income represents 0% of your credit
score. The credit bureaus do NOT have access to your income.
It is also interesting to note that only
10% to 15% of all borrowers have FICO SORES over 800.
Bottom line...pay all your bills in a regular timely manner following the terms given by
the creditor. Obtain only enough credit to manage your financial affairs in a reasonable
way. Plan your purchases. Limit the inquiries. Make it a lifetime goal to persistently
pay down your debt ahead of the creditors schedule