July 18th, 2014 6:52 AM by Jackie A. Graves, President
When you apply for a mortgage loan, the first thing
your lender will do is check your credit history, but they don't read through
your credit reports page by page. They get a snapshot of your credit called a
Fair Isaac Corporation is the company that compiles
your credit scores based on the information in your credit reports.
You've probably noticed the use of plurals -- scores,
reports. That's because there are three credit bureaus, along with Fair Isaac,
that are under the jurisdiction of the Federal Trade Commission. The three
bureaus are called Equifax, Experian, and TransUnion.
The credit bureaus operate independently, and each
collects its own data about your credit from banks, landlords, credit card
companies, retailers, and other sources. Each credit bureau also has its own
credit scoring methodology.
When Fair Isaac scores your credit reports, it creates
a FICO score that will be anywhere from 300 to 850. The lender buys your credit
score and determines how much of a risk you are based on how you handle your
other financial obligations.
Credit scores impact your interest rate. According to
an example by the Consumer Federation of America and Fair Isaac Corporation, a
720 FICO score can help a borrower qualify for a low 5.5% 30-year-fixed-rate
mortgage. A different borrower with a 520 score will pay 8.5% or $2,400 more
annually on a $100,000 loan.
Five areas of your credit can impact your FICO score.
Your payment history -- about 35%
How much you owe -- about 30%
Length of credit history -- about 15%
New credit -- about 10%
Credit mix -- about 10%
How to improve your credit scores
Delinquent accounts, high debt-to-income levels, and
numerous open lines of credit (credit cards with high limits) can all conspire
to lower your scores considerably.
1. Pay your bills on time. Don't worry if you've missed
a payment, catch up and stay current.
2. Keep balances as low as possible on your credit
3. Don't move your credit from card to card. If a
credit card company is charging more you higher interest than you feel is fair,
contact them and negotiate a lower interest rate. Or pay the card off in full.
4. Don't open more credit cards than you need.
5. Credit card companies reward their good customers
with higher loan limits. If you don't want more credit with this company, call
them and ask them to return you to your previous limit.
Having a high credit score can not only get you a lower
mortgage interest rate lower, it also speeds your mortgage approval along.
Written by Blanche Evans - To view the original article