Scoring your Credit - How's your FICO?

Since we live in an computer-driven society, it's not surprising that your ability to repay your mortgage comes down to a single number. The FICO score is compiled by credit agencies. They use the payment history from all of your loans: mortgages, car loans, credit cards, and the like.
The three agencies use slightly different formulas to build a 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 the formulas vary from one agency to another, all of the agencies use the following to calculate your credit score:
- Credit Processing History - How long have you had credit?
- History of Payments - Do you have a history of late payments?
- Balances on your Credit Cards - How many accounts do you hold, and how much do you owe?
- Credit Card Processor Accounts - How many accounts have been closed or shutoff by the Bankcard Processor?
- Inquiries on Your Credit - How many times have you had your credit checked for a loan?
Each of these is assigned a value and a weight. Each formula produces a single number which may vary slightly from one agency to another. Credit scores range from 300 to 800. Higher scores are better. Most people who want to get a mortgage in the current environment have a score above 620.
Credit scores make a big difference in your interest rate
Did you know? Credit scores are used for more than just determining whether or not you qualify for a mortgage. Lenders give lower interest rates to individuals with higher scores.
Improving your score
What can you do to improve your FICO score? Very little in the short term. Because the FICO score is entirely based on your lifelong credit history, it's difficult to change it quickly. (Of course you must appeal incorrect items on your credit report.)
How do I find out my credit score?
In order to raise your credit score, you must obtain the credit reports that are used to build it, and of course, you need the score itself. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO from all three agencies, along with your credit report. Also available are information and online 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 once per year from all three credit reporting agencies by visiting AnnualCreditReport.com. These reports do not include a free 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 most favorable mortgage.