You Credit Score- How's Your FICO?

Since our world is so computer-driven, you're probably not surprised to hear that your ability to repay virtually any loan comes down to one number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Each of the three credit reporting agencies has its own formula for building your 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, each agency uses the following to build your score:

• Credit History - How many years have you had credit?
• Late Payments - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many accounts do you carry? How much do you owe?
• Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these factors is assigned a value and a weight. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher is always better. Most people who want to get a mortgage in the current environment have a score above 620.

Not just for qualifying

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 credit score?

What can you do about your FICO score? Unfortunately, not much. Because the credit score is entirely based on a lifetime of credit history, it's difficult to change it quickly. You must appeal for the credit agency to remove any incorrect reporting from your credit report, which is the only "quick fix" for credit problems.

Getting your credit score

To raise your credit score, you've got to get the reports that the agencies use to build it, and of course, you need the score itself. 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 as well as reports from all three credit reporting agencies. Also available are helpful information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a federally-mandated free credit report once per year from all three credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free score, but it's very inexpensive to get one at the same time.

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