About the FICO Credit Score

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Since we live in an computer-driven society, it should come as no surprise that your ability to repay your mortgage boils down to a single number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills are analyzed, sliced, 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; each agency uses the following in calculating your credit score:

• Your Credit History - Have you had credit for years, or for a short time?
• Late Payments - Do you pay your bills on time?
• Balances on your Credit Cards - How many accounts? How much do you owe?
• Requests for Credit - How many times have you had your credit checked for a loan?

These factors are weighted a little bit differently depending on which formula the agency uses. Each formula produces a single number which may vary a a little from one agency to another. FICO scores can be as low as 300 and as high as 850. Higher is always better. Most home buyers likely find their scores above 620.

Your credit score greatly affects your monthly payment

Did you know? FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my FICO score?

How can you improve your credit score? Despite what you hear from "credit repair" companies, the score is based on your lifelong credit history, so you can't turn it around right away. (Of course you can and should remove incorrect data on your credit report.)

How do I find out my credit score?

To raise your score, you've got to get the reports that the agencies use 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 credit reports from all three agencies. They also provide helpful information and online tools that help you understand how to improve your FICO score.

You can get a free credit report every year from all three credit reporting agencies when you visit AnnualCreditReport.com. These reports do not include a free credit score, but it's very inexpensive to get one at the same time.

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