Because our world is so 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, diced, 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. The original FICO 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 each of the models considers a range of data available in your credit report, all of the agencies use the following to calculate a credit score:

  • Your Credit History – How many years have you had credit?
  • Payment History – Do you pay your bills on time?
  • Your Credit Card Balances – How many accounts do you hold? How much do you owe?
  • Credit Inquiries – How many times have lenders pulled your credit report for the purpose of giving you a loan?

These factors are weighted differently depending on which formula the agency uses. Each formula produces a single number which may vary a little by agency. FICO scores can be as low as 300 and as high as 850. Higher scores are better. Typical home buyers will likely find their FICO scores above 620.

Not just for qualifying

Did you know? FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

Can I improve my credit score?

Is there any way to raise your credit score? Because the FICO score is based on a lifetime of credit history, it’s hard to change it quickly. You should, of course, remove any incorrect data on your credit report, which is the only “quick fix” for credit problems.

How do I find out my FICO score?

Before you can improve your FICO score, you must obtain your score and make sure that the credit reports from each credit reporting 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 credit reports from all three agencies. Also available are helpful information and tools that help you improve your FICO score.

You can get a free credit report every year from all three credit reporting agencies by visiting AnnualCreditReport.com. You won’t get a free credit score from AnnualCreditReport.com, but getting it is quick and inexpensive.

Armed with this info, you will be a more informed consumer and you’ll be better positioned to obtain the right mortgage for you.