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Your credit report is a detailed account of your credit history and payment habits. Lenders use it to determine your risk as a borrower.

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About Credit Reporting

Credit Reporting

Potential homebuyers are constantly hearing about their credit. What their FICO score is, whether it's high enough. But where does this three-digit number come from? Who determines it? We have some answers for you.

What Is a FICO Score?

Your FICO score comes from an algorithm that uses a person's credit history to arrive at a number that reflects how creditworthy they are. The Fair Isaac Corporation debuted this formula in the 1950s and it has since become the most widely accepted credit score in the U.S. There have been a number of changes made to the original algorithm over time, making the scoring system fair to both lenders and consumers.

The FICO Factors

While we don't know the formula used to calculate the FICO scores, we do know it is based on 5 factors: the timeliness of your payments (which accounts for 35% of your score), the total debt you carry (counts for 30%), the age of your credit (15%), how frequently you apply for loans (10%), and the type and variety of debt you have (10%).

It's also important to note what doesn't affect your FICO scores. While credit applications can affect the score, "soft" credit checks do not. The score is not based on sex, race, marital status, religion, nationality, or age. Information about where you live, your job, salary, or the interest rates on your credit accounts is not factored into the score either.

All three major credit bureaus in the U.S.—Equifax, Experian, and TransUnion—calculate credit scores using FICO's algorithm and information they have collected about people's credit history.

What Are Credit Bureaus?

Credit Bureaus collect and maintain consumer credit information. Equifax, Experian, and TransUnion are the main credit bureaus operating in the U.S. as publicly traded, for-profit companies. Also known as Credit Reporting Agencies (CRAs), these bureaus compile information about your credit history—receiving it from lenders and pulling information from public records. They then sell this to other businesses as a credit report on each consumer. CRAs also apply the FICO equation to their reports to generate your credit score, so lenders can determine your creditworthiness.

Keep in mind that credit bureaus are not the ones making the decisions to grant you credit or determining your interest rate. Rather, they give lenders you do business with the tools and information to make those decisions.

Regulating the Bureaus

The U.S. government has introduced legislation in the form of the Fair Credit Reporting Act (FCRA) to monitor practices at credit bureaus. This act regulates how CRAs, including Experian, TransUnion, and Equifax, can and must operate. Because of the sensitive information these bureaus have access to and share about American citizens, they are strictly monitored by the Federal Trade Commission.

About the One-Time Close Constuction Loan
Your FICO score is based on 5 factors: timely payments, your total debt, the age of your credit, frequency of loan applications, and the type and variety of debt you have.
See Your Credit Scores From All 3 Bureaus
See Your Credit Scores From All 3 Bureaus

FHA Loan Articles

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It’s a great option to consider if you want to build your dream home on your own land instead of buying someone else’s already-lived-in house. FHA One-Time Close mortgages are also referred to as single-close construction loans--you’ll see these terms used interchangeably.

Down Payments for FHA Loans

One of the major hurdles that keeps families from purchasing a home is the need for a down payment.  The FHA’s goal is to offer more homebuying opportunities to low- and moderate-income Americans and set more easily achievable down payment requirements for borrowers. 

When Should I Get Approved for a Home Loan?

One of the first steps to take when you decide to buy a home is getting pre-approved for a mortgage. It is important to know what it means to get pre-approved for a home loan, and what the pre-approval letter does and doesn’t do for your home buying chances.

What Affects a Home Loan Applicant's Credit the Most?

A home loan is one of the most important investments you can make. Buying a home means owning property, and being a homeowner means there's potential to watch your investment grow in value over time.  But first, the lender has to make sure the borrower is a good credit risk.

Reasons for FHA Refinancing

Interest rates started to decline in 2019 and still seem considerably low. The average rate for a 30-year, fixed rate home loan has fallen from 4.94% in November 2018 to 3.13% in October 2021. A point drop in your interest rate could translate to huge savings with each monthly payment

FHA Loan Requirements for 2021 and Beyond

The FHA’s aim is to make homeownership more affordable and accessible for Americans, and it has been doing so for decades. It insures home loans made by FHA-approved lenders so borrowers can purchase single-family and multi-family homes in the US and its territories. 

-- Find More Articles in the FHALoan Library --

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