Since we live in a computer-driven society, it's not surprising that your ability to repay your mortgage loan boils down to a single number. The years of paying your various bills: your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

 

Equifax, TransUnion, and Experian, the three major credit reporting agencies, each have a proprietary formula for building a credit score. The original FICO model was developed by Fair Isaac and Company. 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 to build a score:
 

 

• Credit History - How long have you had credit?

• History of Payments - Do you pay your bills on time?

• Credit Card Balances - How many credit card accounts do you have, and how much do you owe on them?

• Credit Inquiries - How many times have lenders pulled your credit for the purpose of lending you money?
   

 

These factors are weighted a little bit differently depending on the formula being used. Each formula produces a single number which may vary a little from one agency to another. FICO scores can be as low as 300 and as high as 800. Higher is always better. Most folks getting a mortgage loan these days have a score above 620.
 

 

Credit scores make a 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. Higher scores indicate you are probably a better credit risk, and thus may qualify for a better mortgage rate.
 

 

Raising your credit score

What can you do about your FICO score? Very little in the short term. Some companies promise quick fixes, but they can't do anything different than what you can do — for free. (Of course you must remove incorrect data on your credit report.)
 

 

Getting your FICO score

Before you can improve your score, you must obtain your score and make sure that the reports from each agency are correct. Fair Isaac, the company that offered the first FICO score, sells credit scores on myFICO.com. It's inexpensive, fast, and easy to get your credit score as well as reports from all three reporting agencies. They also provide helpful 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 every year from all three credit reporting 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 will be a more informed consumer and you'll be better positioned to get the right mortgage for you.