Planning to buy a new home? You will want to understand the credit score that lenders will be using to qualify you for a new mortgage. Your credit score is often referred to as your FICO score because it is calculated using software developed by Fair Isaac and COmpany. FICO scores range from 300 to 850, and the higher the better.

Why is my FICO score important?

In general, your score is an assessment of how you have managed credit in the past, and has a large impact on interest rates that lenders will offer you for a loan. Look at the different rates offered to borrowers with different FICO scores as of July 21, 2004 for a $150,000, 30-year, fixed mortgage.

Who determines my FICO score and how?

Any credit related transaction or inquiry you make is reported to one or more of the three major credit bureaus, TransUnion, Experian, or Equifax. They use several factors in the calculation of your score. The three most important are: Your payment history, your payment history, and your payment history. Paying your bills on time is the single most important action you can take to build a solid credit history. If you do get into trouble, contact your lenders early and often. You can repair a bad history, even a bankruptcy, but it takes time to create a track record that reflects responsible use of credit.

How long you have successfully managed credit is also a key factor in the calculation of your score. A borrower with a 20-year history of paying on time is less risky than one with a six-month history. This can be an especially critical issue for women who find themselves "suddenly single" due to death or divorce and don't have an extensive history in their own names.

Another factor is your outstanding balances in relation to your overall available credit limit. A borrower whose balance represents 95% of all available credit is more risky than a borrower whose balances equal only 20% of their available limits. HINT: don't close unused accounts if you are considering a new loan. The excess "available limit" may help your score. Beware of opening several new accounts just before applying for a mortgage. This tactic won't usually help and will actually lower your score. Your length of time at your present residence, whether you own or rent your home and your employment history are other factors considered.

Beware of firms that claim to be able to repair or improve your scores dramatically in a short period of time. This just isn't possible.

How can I find out what my FICO score is now?

Go to www.myfico.com and choose from among several report options that include your FICO score and credit reports from one or all three of the agencies for a small fee. You can also contact each agency directly to obtain a credit report and your score. Equifax (800-685-111), TransUnion (800-916-8800), and Experian (888-397-3742).

Sandra Costin Atkins and Helen L. Modly are principals of Focus Financial Consultants, Ltd., in Middleburg, VA. The firm offers wealth management services, including comprehensive financial planning, fee-only investment management, and specialized divorce-related consulting. Ms. Atkins is a CPA with a specialty designation as a Personal Financial Specialist (PFS). She has been a member of the Middleburg business community for 28 years. Ms. Modly is a Certified Financial Planner, as well as a Certified Divorce Financial Analyst. She has lived in Fauquier County for 20 years.