FICO - Your Credit Score

Since we live in an automated world, it's not surprising that your ability to repay your mortgage boils down to a single number. This score is created by credit agencies. They use the payment history of all of your loans: credit cards, mortgages, car loans and others.

TransUnion, Equifax, and Experian, the three major credit agencies, each have their own proprietary formula for building your credit score. The original FICO score 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, the differences aren't huge; each agency uses the following factors to build a score:

• Credit History - How many years have you had credit?
• Late Payments - Do you pay your bills on time?
• Your Credit Card Balances - How many accounts do you have, and how much do you owe on them?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The result is one number. FICO scores range from 300 to 850. Higher is always better. Most borrowers who want to get a mortgage these days have a score above 620.

Your FICO score greatly affects your interest rate

Did you know? Credit 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.

Raising your credit score

Is it possible to improve your FICO score? Despite what you hear from "credit repair" companies, the score is based on your lifetime credit history, so you can't turn it around right away. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

To improve your score, you must have the reports that are used to build it. Of course, you need the score as well. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with reports from all three credit reporting agencies. Also available are helpful information and tools that help you understand how to improve your FICO score.

You can get a federally-mandated free credit report every year from the three major agencies by visiting AnnualCreditReport.com. While this report does not include a free credit score, the cost to "upgrade" your report to include a credit score is very reasonable.

Now that you have all the facts, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.