FICO - Your Credit Score

Since we live in an automated society, it should come as no surprise that your ability to repay your mortgage boils down to a single number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model was developed by Fair Isaac and Company. 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, each agency uses the following to build a score:

• Credit History - How many years have you had credit?
• Payment History - Have you paid more than 30 days late, and how often?
• Balances on your Credit Cards - How many accounts do you have? How much do you owe?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which varies slightly by agency. FICO scores range from 300 to 800. Higher is better. Most home buyers in the current environment have a score above 620.

Credit scores make a big difference in your interest rate

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

What can you do to raise your FICO score? Very little in the short term. Despite what you hear from "credit repair" companies, the score is calculated from your lifelong credit history, so you can't turn it around right away. You should, of course, appeal for the credit agency to remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.

How do I find out my credit score?

Before you can improve your score, you must get your score and ensure that the credit reports from each credit reporting agency are correct. Fair Isaac, the corporation that invented the original FICO score, offers FICO scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score along with credit reports from all three credit reporting agencies. They also provide information and tools that can help you improve your credit score.

You can get a free credit report once a year from the three major agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and inexpensive.

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