In this study, an improved correlational procedure for factor-analyzing dichotomously-scored item response data is described and tested. The procedure involves (a) replacing the dichotomous input values with continuous probability values obtained through Rasch analysis; (b) calculating interitem product-moment correlations among the probabilities; and (c) subjecting the correlations to unweighted least-squares factor analysis. Two simulated data sets and an empirical data set (Kentucky Comprehensive Listening Test responses) were used to compare the new procedure with two more traditional techniques, using (a) phi and (b) tetrachoric correlations calculated directly from the dichotomous item-response values. The three methods were compared on three criterion measures: (a) maximum internal correlation; (b) product of the two largest factor loadings; and (c) proportion of variance accounted for. The Rasch-based procedure is recommended for subjecting dichotomous item response data to latent-variable analysis.