About the FICO Credit Score

Since we live in a computer-driven society, 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 are analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary formula for building your credit score. The original FICO was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While these methods vary from one agency to another, all of the agencies use the following to determine a score:

• Your Credit History - How many years have you had credit?
• Payment History - Do you have any payments later than 30 days?
• Balances on your Credit Cards - How many credit card accounts do you hold, and how much do you owe on them?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?

Each of these is assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 850. Higher is always better. Most home buyers in the current environment have a score above 620.

Your score affects your monthly payment

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Lenders give lower interest rates to individuals with higher scores.

Raising your credit score

Is it possible to improve your credit score? Since the FICO score is entirely based on your lifelong credit history, it's very difficult to significantly improve the score with quick fixes. You should remove any incorrect data on your credit report, which is the only way to quickly improve your credit score.

Getting your credit score

Before you can improve your credit score, you have to obtain your score and ensure that the reports from each credit reporting agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are information and online tools that help you improve your FICO score.

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

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