About the FICO Credit Score

Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage boils down to a single number. Credit reporting agencies use your payment history to build this score.

Each of the three credit agencies has its own formula for building your credit score. Fair Isaac and Cooriginally developed this score. . 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 build your score:

• Your Credit History - How long have you had credit?
• History of Payments - Do you have any payments later than 30 days?
• Credit Card Balances - How many accounts? How much do you owe?
• Credit Inquiries - How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted slightly differently depending on which formula the agency uses. Each formula produces a single number which may vary slightly from one agency to another. FICO scores range from 300 to 850. Higher is better. Most folks getting a mortgage in the current environment score 620 or above.

Not just for qualifying

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.

Improving your score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Because the score is entirely based on your lifelong credit history, it's hard to change it quickly. You should remove any incorrect reporting from your credit report; this is really the only way to quickly improve your credit score.

Getting your credit score

To improve your credit score, you must obtain the reports that the agencies use to build it, and of course, you need the score itself. Fair Isaac, the company that invented the original FICO credit score, offers scores on myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. 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 every year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

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