Scoring your Credit - How's your FICO?

Since we live in an automated world, it's not surprising that your ability to repay your mortgage loan comes down to just one number. Credit reporting agencies use your history of paying all types of loans in order to build this score.

All three major credit agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. Fair Isaac and Cooriginally 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; they all use the following factors in building a score:

• Your Credit History - How long have you had credit?
• Payment History - Do you have any payments later than 30 days?
• Credit Card Balances - How many accounts do you have, and how much do you owe?
• Requests for Credit - 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. Each formula produces a single number which may vary slightly from one agency to another. Credit scores can be as low as 300 and as high as 800. Higher scores are better. Most home buyers will probably find their credit scores falling between 620 and 800.

Your score affects your monthly payment

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.

Can I raise my FICO score?

Is there any way to improve your credit score? Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must have incorrect items removed from your credit report.)

Getting your credit score

In order to improve your score, you must get the credit reports that are used to build it. Of course, you need the score as well. Fair Isaac, the company that invented the original FICO score, offers scores on its website: myFICO.com. It's inexpensive to get your FICO from all three agencies, along with your credit report. They also provide helpful information and tools that help you improve your credit score.

You can get a federally-mandated free credit report once a year from all three credit reporting agencies when you visit 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.