About the FICO Credit Score

Because we live in an automated, it's probably not that surprising that your creditworthiness comes down to one number. All the years you've been paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a credit score. The original FICO model 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 these methods vary, the differences aren't huge; they all use the following factors to build a score:

• Your Credit History - Have you had credit for years, or for just a short time?
• Late Payments - Do you pay your bills on time?
• Balances on your Credit Cards - How many credit card accounts do you have, and how much do you owe on them?
• Credit Inquiries - How many times have you had your credit checked for a loan?

Each of these is assigned a value and a weight. The result is one number. Credit scores range from 300 to 800. Higher scores are better. Most home buyers likely find their FICO scores falling between 620 and 800.

Your FICO score affects your interest rate

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.

Can I improve my credit score?

Unfortunately, there isn't a lot you can do to immediately improve your credit score. Some companies promise quick fixes, but they can't do anything different than what you can do ? for free. You must, of course, appeal for the credit agency to remove any incorrect reporting from your credit report; this is the only way to quickly improve your credit score.

Getting your FICO score

Before you can improve your FICO score, you have to get your score and ensure that the credit reports from each agency are correct. Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. It's inexpensive, fast, and easy to get your credit score along with 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 credit reporting agencies at 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.

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.