How's your FICO Score?

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Since our world is so computer-driven, it's probably not that surprising that your ability to repay virtually any loan boils down to a single number. The FICO score is compiled by credit reporting agencies. They use the payment history from all of your loans: credit cards, mortgages, car/boat loans and the like.

Experian, TransUnion, and Equifax, the three major credit agencies, each have a proprietary formula for building your credit 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, each agency uses the following to determine your score:

• Your Credit History - How many years have you had credit?
• Payment History - Do you have a history of late payments?
• Balances on your Credit Cards - How many accounts do you have? How much do you owe on your accounts?
• Credit Inquiries - How many times have you had your credit checked for a loan?

These factors are weighted slightly differently depending on the formula being used. The results are added up and distilled into a single number. Credit scores can be as low as 300 and as high as 850. Higher is always better. Most folks who want to get a mortgage loan 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. Lenders give lower interest rates to individuals with higher scores.

Improving your score

How can you improve your FICO score? Because the FICO score is based on a lifetime of credit history, it's very difficult to significantly improve the score with quick fixes. (Of course you must appeal incorrect items on 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 credit reports from each reporting agency are correct. Fair Isaac, the corporation that invented the first FICO credit score, offers FICO scores on myFICO.com. It's inexpensive to quickly get your FICO score from all three reporting agencies, along with your credit report. Also available are helpful information and tools that help you improve your credit score.

You can get a federally-mandated free credit report every year from the three major 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 right mortgage for you.