Scoring your Credit - How's your FICO?

Since our world is so computer-driven, you're probably not surprised to hear that your creditworthiness comes down to a single number. All the years you've been paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

Experian, TransUnion, and Equifax, the three major credit reporting agencies, each have their own proprietary 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 these methods vary from one agency to another, the differences aren't huge; each agency uses the following in building a score:

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

Each of these factors is assigned a value and a weight. The result is a single number: your FICO score. FICO scores range from 300 to 800. Higher is always better. Most people getting a mortgage in the current environment score 620 or above.

Not just for qualifying

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 credit score

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Since the credit score is entirely based on a lifetime of credit history, it's very difficult to significantly improve the number with quick fixes. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

Before you can improve your credit score, you have to know your score and make certain that the reports from each agency are correct. Fair Isaac, the corporation that invented the original FICO credit score, offers credit scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score along with reports from all three agencies. Also available are helpful information and online tools that help you understand how to improve your FICO score.

You can get a federally-mandated free credit report every year from the three major credit reporting agencies by visiting 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'll be a more informed consumer and you'll be better positioned to obtain the right mortgage for you.