What factors determine my credit score?

When determining how high a score will be, five characteristics separate the cream of the crop from everyone else. In order of score significance:

• Past delinquency: People who have failed to make payments in the past tend to do the same in the future.
• The way credit has been used: Someone who is maxed out or close to the limit on a credit card is considered a greater risk than someone who doesn't look at the high credit line as a license to print money.
• The age of the credit file: Fair Isaac's model assumes people who have had credit for a long time are less risky.
• The number of times a person asks for credit: The system frowns upon those who have initiated several requests for credit cards, loans or other debt instruments over a short period.
• A customer's mix of credit: Someone with only a secured credit card is generally riskier than someone who has a combination of installment and revolving loans. (On installment loans, a person borrows money once and makes fixed payments until the balance is gone, while revolving borrowers make regular payments, each of which frees up more money to access.)

How is credit worthiness gauged using the credit score?
It depends on the type of loan a consumer is seeking. For example, a mortgage broker will give more weight to different credit factors than a credit card issuer.

Mortgages: By Freddie Mac standards, borrowers with FICO scores above 660 are likely to have an "acceptable" credit reputation and their loan files need only a basic review. The credit risk is "uncertain" for those with scores between 620 and 660, with a thorough review of the borrower's entire credit history. A score below 620 indicates "high risk" with an unacceptable credit reputation that could make traditional financing difficult to obtain.

"Most very good FICO scores come in the mid-700s," explains Michael Feldman, a co-founder of MortgageIT.com. "You'll see standard pricing, assuming a FICO score above 680. A score above 720, the pricing gets better. If you get above 750 -- with some lenders in some cases -- you'd see another improvement in the points. On the average $200,000 (home purchase), it can mean up to $1,000 to a consumer. It's real money."

Credit cards: Credit card lenders place additional weight on credit card-related information, such as how many times a person missed revolving credit payments. And the systems evaluate a college student targeted for a starter card differently than a platinum-toting stockbroker with a summer home in the Hamptons.

Auto lenders: Auto scores, on the other hand, focus on "deal characteristics" in much the same way the mortgage scores do, David Shellenberger, director of analytic research and development at Fair Isaac, says. They take into account things such as the amount a customer puts down, for example, as well as a borrower's debt-to-income ratio, length of time at one job and the like. As with credit card lending, information about past performance on similar types of loans is weighted, so a missed Nissan payment might be more important than an overdue Visa bill.

Why would knowing your credit score help?
Mortgage experts say you can use it to improve your creditworthiness and negotiate for the best possible terms.

"These are very intimidating transactions," says Eric Cunliffe, former president and CEO of HomeSpace Inc., now a division of Lendingtree.com. "A mortgage is probably the single biggest transaction most people make in their lives. The traditional approach -- 'no one will tell me where I stand' -- only exacerbates the process. If you have very good or excellent credit, you know you should be qualifying for the best rate available."

That won't happen, though, if the first time you look at your score is when you have the contract for your dream house in your hands and the clock to closing is already ticking.

"The problem is that lenders grade mortgages on a FICO score," Feldman says. "At the point a lender is doing that, you can't change it. If you do it three to six months ahead of time, then you have ample time."

Given the competition in the field, just about any mortgage broker will be happy to run a credit report for you -- even if you're not planning to buy a house for a year -- to get you prequalified.

-- Updated: Oct. 13, 2003