You Credit Score- How's Your FICO?

Because our society is so computer-driven, it's probably not that surprising that your creditworthiness boils down to a single number. This score is built by credit reporting agencies. They use the payment history from all of your loans: mortgages, car loans, credit cards, and others.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. Fair Isaac and Co originally 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, the differences aren't huge; all of the agencies use the following to calculate a score:

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

These factors are weighted slightly differently depending on the formula being used. Each formula produces a single number which may vary slightly from one agency to another. Credit scores range from 300 to 800. Higher is always better. Most home buyers in the current environment have a score above 620.

FICO makes a huge difference in your interest rate

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.

Can I raise my FICO score?

Is there any way to improve your FICO score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. You must, of course, remove any incorrect data on your credit report, which is the only "quick fix" for credit troubles.

Getting your FICO score

Before you can improve your credit score, you have to obtain your score and make sure that the credit reports from each agency are correct. Fair Isaac, the corporation that offered the original FICO credit score, offers FICO scores on its website: myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as credit reports from all three reporting agencies. They also provide helpful information and tools that can help you improve your credit score.

You can get a free credit report every year from all three 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 get the most favorable mortgage.