The future of FICO
By Pat Curry • Bankrate.com

Imagine this. You're thinking about refinancing your mortgage, but you know your credit could use a bit of buffing.

So, you start doing all the things that the financial wizards say you should. You pay off a couple of credit cards with balances and close a couple of others that you don't really use. Not too much later, you get an e-mail telling you that your credit score is now high enough to qualify for the best interest rates.

Or, try this: Same scenario, but you're not sure which activities will help your credit score and which ones will hurt. So you pull up a credit score simulator and play with the variables to see how high you can boost your score if you pay off all your balances, or if it's enough to pay off just one.

Credit scoring is getting smarter, and friendlier, for most consumers to use. The second scenario is already available from a variety of companies, including Fair Isaac Corporation, the creator of the FICO score.

By way of introduction, credit scores are widely used in the financial industry. The three-digit number is the result of a mathematical algorithm. It's designed to help banks, credit card providers, auto loan companies and others decide how good a credit risk you are, and it can make a tremendous difference in the interest rate you'll be offered.

Derived by comparing your credit history and payment behavior with thousands of other borrowers, the scores generally fall in the range of 500 to 850. The higher the number, the better. According to Fair Isaac Corporation, a person with a FICO score of 720 or more will pay significantly less in interest on a mortgage than someone whose score is below 560.

Your financial shadow
The mortgage industry has used credit scores for years to help speed up the lending process. They're also widely used for car loans and are the driving force behind online, "instant" credit card approval.

Plus, they've become standard in the insurance industry for setting rates for car insurance. Employers use them to screen applicants, particularly those for money-handling positions. Landlords access them for potential tenants to see who's most likely to pay their rent on time.

And, of course, since credit scores aren't a deep dark secret to be kept from consumers at all cost, just about everyone is offering consumers the chance to buy them.

With so many companies offering their own version of credit scores, it's no surprise that Fair Isaac Corporation has a "certified score." The idea is that consumers can go to the company's Web site, purchase a current, official FICO score and "use that as a bargaining lever with lenders to get lower rates," Watts says.

Assistant Professor Mark Oleson, director of the Office for Financial Success at the University of Missouri and a licensed marriage and family therapist says that while he's read about financial institutions and insurance companies using credit scores more often, there appears to be a lack of empirical evidence to back up the claims that they're accurate predictors of other kinds of behavior.