FICO - Your Credit Score

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Because we live in a computer-driven world, it should come as no surprise that your ability to repay virtually any loan boils down to a single number. The FICO score is compiled by credit agencies. These agencies use the payment history of your various loans: credit cards, mortgages, car/boat loans and the like.

Equifax, TransUnion, and Experian, the three major credit agencies, each have a proprietary 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 the formulas vary, each agency uses the following to calculate your score:

• Credit History - Have you had credit for years, or for a short time?
• Late Payments - Do you have a history of late payments?
• Your Credit Card Balances - How many credit card accounts do you have, and 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 results are added up and distilled into a single number. Credit scores range from 300 to 850. Higher is always better. Most people getting a mortgage these days score 620 or above.

Your credit score affects your monthly payment

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Raising your FICO score

What can you do about your FICO score? Unfortunately, not much. Despite what you hear from "credit repair" companies, the FICO score is built on your lifetime credit history, so you can't turn it around right away. You must remove any incorrect data on your credit report; this is the only "quick fix" for credit troubles.

How do I find out my credit score?

Before you can improve your score, you have to obtain your score and be sure that the credit reports from each reporting agency are correct. Fair Isaac, the company that offered the original FICO credit score, offers scores on its website: myFICO.com. It's inexpensive to get your FICO score from all three reporting agencies, along with your credit report. They also provide 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 every year from all three 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 info, you'll be a more informed consumer and you'll be better positioned to get the right mortgage for you.