Scoring your Credit - How's your FICO?

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Since we live in an computer-driven world, it should come as no surprise that your ability to repay your mortgage comes down to a single number. The FICO score is compiled by credit reporting agencies. These agencies use the payment history from your various loans: mortgages, car/motorcycle loans, credit cards, et cetera.

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 determine your score:

• Credit History - How many years have you had credit?
• Late Payments - Have you paid more than 30 days late, and how often?
• Credit Card Balances - How many credit card accounts do you hold, and how much do you owe on them?
• Requests for Credit - How many times have lenders pulled your credit report for the purpose of lending you money?

These factors are weighted a little bit differently depending on which formula the agency uses. The results are added up and distilled into a single number. FICO scores range from 300 to 850. Higher scores are better. Most home buyers in the current environment have a score above 620.

Your score affects how much you pay in interest every month

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 raise your FICO score? Unfortunately, not much. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must appeal for the credit agency to remove any incorrect data from your credit report; this is the only way to quickly improve your credit score.

Know your FICO

To raise your score, you must get the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac, the company that invented the first FICO score, offers credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. They also provide information and tools that can help you improve your FICO score.

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

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