Scoring your Credit - What is your FICO Score?
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In today's increasingly automated society, it should come as no surprise that when you apply for a mortgage, your Credit score could be the determining factor as to whether or not you will actually be approved for the mortgage. All the years you've been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.
All three of the major credit reporting agencies (Equifax, Experian, and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:
- Credit History - How long have you had credit?
- Payment History - Do you pay your bills on time?
- Credit Card Balances - How much do you owe on how many accounts?
- Credit Inquiries - How many times have you had your credit checked?
Each of these, and other items are assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 850, with higher being better. Typical home buyers likely find their scores falling between 600 and 850.
What Is A Good Credit Score?
- Excellent Credit Score: 750+
- Good Credit Score: 700-749
- Fair Credit Score: 650-699
- Poor Credit Score: 600-649
- Bad Credit Score: 600 or below
Before you start on your home-owning journey, you need to ensure that your credit score is as close to the excellent range so that you can boost your chances that your mortgage application will be approved.
Inaccuracies on your report
It’s worth noting that credit scores are based on the data in the report being correct. According to the Federal Trade Commission, a study in 2012 revealed that as many as 1 in 5 people had errors on at least one of their credit reports.
Verifying the accuracy of the information on the report is crucial because if an error has occurred, it may impact your ability to secure a mortgage or borrow in the future. You wouldn’t want to pay the price for someone else’s financial mismanagement because your name was misspelled or your address was listed inaccurately.
Incorrect late payments on your report
Companies make mistakes too. Check that the entries are correct and that any late payments listed are accurate. Question everything on the report. If you are confident that a late payment is listed in error, highlight it.
If you see something that raises your suspicions as a payment you don’t recognize, highlight it for attention later. It’s worth adopting the attitude that you may not always be at fault. The same applies for unfamiliar accounts on your credit report. Generally, there are phone numbers to call on your report to check to see what the charge actually is.
There could be some entries that are decades old, for example, debts that you know have long since been settled. If these linger on your report, they might cause you damage.
So, what do you do if you spot an error or inaccuracy? Contact the credit bureau and dispute it. The Fair Credit Reporting Act lists the time limits on reporting differing debts on your credit score, so check this list out before you contact the credit bureau.
Keep in mind that raising a dispute doesn’t cost you anything, save for the time on the phone you might need to resolve the issue, and fixing these errors can go a long way to improving how to look to a mortgage company. You could also employ the services of a reputable credit repair company to follow up the credit bureau on your behalf. This isn’t the cheapest option, but it could be the easiest way to reduce that black mark against your name.
Even after thoroughly reviewing your credit reports, you might come to the realization that you need to find other ways to improve your score. Once you’ve established where you stand, be proactive in your approach to fixing the issues. Only you can affect a change to improve your circumstances and chances of securing a mortgage. Some ways you can do this include:
Try to pay down the debt
Paying down the debt is the first step to taking responsibility and control, but it requires discipline. Budgeting is critical here; you have to adjust the way you live in many ways and sometimes make difficult choices to keep on track.
Paying down the debt is the single biggest thing you can do, though, because we know that the debt isn’t simply going to vanish. TIP: if you can't pay down the debt as fast as you would like you could ask the creditor to increase your credit limit on your cards as bureaus view cards with their limits maxed as a bad mark. But don't use them after they extend you more credit. This trick may take up to 60 days before it shows up on your credit.
Don’t shift the debt around
Don’t try to hide the debt by swapping among different credit cards: it will still appear as a record on your credit file.
Avoid taking out loans
Taking out a loan isn’t the answer to paying off credit because a loan is credit and still appears on the report. Moreover, lenders take a dim view on anyone who tries this as it shows a lack of responsibility for your financial predicament.
Be PatientPatience is very much the watchword here. Nothing you do will impact on your credit score overnight. Remember that it probably took years to accumulate lousy credit, so undoing the damage of poor financial management could take years too.
Know Your Credit AgeYour credit age is a term that implies the number of years you have had a good credit profile. For every year that you keep a clean record, your credit score improves. The minimum age you should be aiming for is 5 years, so be set for the long haul.
Go to https://www.annualcreditreport.com to get your free annual credit report. We can use this report to help you, but we will need to run our own report for the home loan. This will allow you to see what the bureaus are reporting and what your Credit Scores are.
Get Your Free Credit Report
We can check your credit for free Call us at (916) 672-6130 or Click Here to submit your information.
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