How's your FICO Score?

Because we live in a computer-driven world, you're probably not surprised to hear that your creditworthiness boils down to one number. The years of paying your various bills: your mortgage, vehicle payments, and credit card bills can be analyzed, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a 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 calculate a credit score:

• Your Credit History - How many years have you had credit?
• Payment History - Have you paid more than 30 days late?
• Your Credit Card Balances - How many accounts do you have, and how much do you owe?
• Inquiries on Your Credit - How many times have you had your credit checked for a loan?

These factors are assigned weights based on the formula being used. Each formula produces a single number which may vary a a little from one agency to another. Credit scores can be as low as 300 and as high as 850. Higher is always better. Most home buyers these days have a score above 620.

FICO makes a difference in your interest rate

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.

Improving your score

Is it possible to raise your FICO 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 FICO score

Before you can improve your score, you have to get your score and ensure that the reports from each agency are correct. Fair Isaac, the corporation that invented the first FICO score, sells 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 information and online tools that help you analyze what actions might have the greatest impact on your FICO score.

You can get a free credit report every year from all three agencies when you visit AnnualCreditReport.com. You won't get a free credit score from AnnualCreditReport.com, but getting it is fast and very inexpensive.

Armed with this info, you will be a more informed consumer and you'll be better positioned to obtain the most favorable mortgage.