About the FICO Credit Score

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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. This score is built by credit reporting agencies. These agencies use the payment history of all of your loans: credit cards, mortgages, car/boat loans et cetera.

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary formula for building a credit score. The original FICO was developed by Fair Isaac and Company. 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 build your score:

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

These factors are assigned weights based on the formula being used. The result is a single number: your credit score. Credit scores range from 300 to 850. Higher scores are better. Most home buyers will probably find their FICO scores falling above 620.

Not just for qualifying

FICO scores affect more than your ability to get a loan. They also affect your interest rate. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.

Improving your score

Is there any way to raise your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you can and should remove incorrect data on your credit report.)

How do I find out my FICO score?

To improve your credit score, you must obtain the reports that are used to build it. Of course, you need the score as well. Fair Isaac, the corporation that invented the original FICO credit score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three credit reporting agencies. Also available are information and tools that can help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report once a year from the three major 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 get the most favorable mortgage.