How's Your FICO Score?

Since we live in an automated 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, vehicle payments, and credit card bills are analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

The three agencies use slightly different formulas to build a credit score. Fair Isaac and Cooriginally developed this score. Experian uses this model and calls its score FICO. Equifax's model, based on FICO, is called BEACON, while TransUnion, which also uses a slightly modified FICO, calls its score EMPIRICA. While each of the models considers a range of data available in your credit report, the differences aren't huge; they all use the following factors in calculating your credit score:

• Your Credit History - Have you had credit for years, or for just a short time?
• Late Payments - Do you pay your bills on time?
• Balances on your Credit Cards - How many accounts do you carry? How much do you owe on your accounts?
• Inquiries on Your Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 850. Higher scores are better. Most home buyers in the current environment have a score 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.

Raising Your FICO Score

How can you improve your credit score? Because the score is based on a lifetime of credit history, it's very hard to change it quickly. You must, of course, remove any incorrect reporting from your credit report, which is the only way to quickly improve your credit score.

How Do I Find Out My Credit Score?

Before you can improve your FICO score, you have to know your score and make sure that the credit reports from each agency are correct. Fair Isaac, the company that offered the original FICO score, sells scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. Also available are information and tools that can help you understand how to improve your FICO score.

You can get a federally-mandated free credit report every year from all three agencies by visiting AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting one is quick and very inexpensive.

Armed with this info, you'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.