You Credit Score- How's Your FICO?

Since we live in an computer-driven world, it's not surprising that your ability to repay your mortgage boils down to just one number. The years of 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.

Each of the three credit agencies has its own formula for building your credit score. The original FICO model was developed by Fair Isaac and Company. While Experian still calls its score "FICO", TransUnion calls its score "Beacon" and Equifax uses "Empirica." While each of the models considers a range of data available in your credit report, all of the agencies use the following to calculate a score:

• Credit History - Have you had credit for years, or for a short time?
• Late Payments - Do you have a history of late payments?
• Balances on your Credit Cards - How many accounts? How much do you owe on your accounts?
• Credit Inquiries - How many times have lenders pulled your credit for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which varies slightly by agency. Credit scores can be as low as 300 and as high as 850. Higher is better. Most folks who want to get a mortgage loan these days have a score above 620.

FICO makes a huge difference in interest rates

Did you know? 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

What can you do to improve your FICO score? Unfortunately, not much. So called "credit repair" companies advertise quick fixes, but the score is based on your lifetime credit history, so it's not possible to raise it significantly in the short term. You must, of course, appeal for the credit agency to remove any incorrect data on your credit report, which is the only "quick fix" for credit problems.

Know your FICO score

In order to raise your credit score, you've got to 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 agencies. They also provide helpful information and online 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 a year from all three credit reporting agencies at 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.

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