If you have tried to apply for a mortgage loan, you probably have come across the term called FICO. Even if you have not heard of it, rest assure it is used every time you look to secure a mortgage loan. It can determine whether or not your loan application is approved and also the interest rate you pay.

So what is FICO?

FICO are sometimes referred as credit scores. It is a computerized software model developed by Fair Issac Corporation (FICO) to determine credit scores. Think of it as your personal financial score card, only that it is rated by a lending institution or company.

They will assign you a credit score based on an analysis of your credit history. It is then entered into a computer. Most major credit reporting companies such as Equifax and Trans Union uses the FICO model. Mortgage lenders then use your credit score to determine whether or not your loan is approved and the interest rate you pay.

You should note that not all credit reporting companies uses the same software so your FICO score may vary at each of them.

So what are the factors in determining your FICO score?

There are many factors used to determine your credit score. Examples are amount owed, types of credit and your payment history. I will try to break down the factors by percentage but do note this is just an estimate since not all credit companies rate the factors the same percentage.

1. Payment History

As much as 35% of your FICO score is determined by your payment history. Your records such as late payment of credit cards or previous loans and the length of time overdue will adversely affect your credit score.

2. Debt To Income Ratio

This accounts for 30%. How much you owe versus your income level can determine your FICO score in this area. Obviously, the more you owe and the less income you have, the lesser chance of your mortgage loan being approved.

3. Length of history

This accounts for 15%. Mortgage companies will check how long your accounts have been open and the amount of activity. So the longer and better your credit history, the better chance of scoring high in this area.

Other factors in determining your FICO score include the number and types of accounts you have, credit card balances, number of credit cards you have etc.

As you can see above, the best way to improve your FICO score is to practice proper financial management. Make sure to pay your credit card bills and loans on time and keep your credit card balances low. It does take time of course.

Ricky Lim is the online editor of http://www.about-homeloan.com where you can find a large respository of home loan and home refinance articles and resources.