Your Fico Score

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Do you want to buy a house or condominium
but your credit is less than perfect?

If so, the best way to begin your home finance quest is to get a copy of your credit report and your FICO or Fair, Isaac & Co. credit score. Then you will know how bad or good your credit is. Virtually all mortgage lenders will use your credit score to qualify you for their programs and determine if you can obtain their best loan terms.

The way to get your credit report and FICO score is to go online to www.myfico.com. If you don't have a computer go to the public library and use the reference departments computer to reach that Web site. Your credit report and FICO score will cost $12.95.

You might be surprised to learn your FICO credit rating is higher than you expected, or maybe its worse. Perhaps there are credit report errors that need to be corrected before you apply for a loan.

Since the mid-1990s, major lenders such as Fannie Mae and Freddie Mac have been using computerized programs to approve new and refinanced home loans. Oddly, income, savings and other assets don't affect your FICO score.

FICO scores range between 450 and 850, the higher the better. If your FICO score is between 620 and 659, you'll probably be approved for a home loan. Lower than this range, you might have difficulty. FICO scores above 660 are routinely approved.

A FICO score higher than 700 is considered a slam dunk for approval, unless you are requesting a home loan that will take too high a percentage of total monthly house hold income. However, self employed applicants, even with a high FICO score, are often treated harshly by mortgage lenders unless their mortgage loan to value ratio is less than 80%.

If you discover your credit report contains errors it is up to you to correct them. Each credit report will cost around $8.00.

If you are unemployed or on welfare; have been told a collection agency has or will report negative credit information about you; were recently rejected for credit, employment or insurance based on credit; or feel you were the victim of credit fraud, you are entitled to a free copy of your credit report.

When you phone, e-mail or write each of the three major national credit bureaus, you will be told the exact cost to obtain your credit report (unless you are entitled to a free credit report). To request a copy of your credit report, the credit bureaus latest addresses and phone numbers are:

TransUnion - P.O. Box 1000, Chester, PA 19022; (800) 888-4213; www.tuc.com

Experian (formerly TRW) - P.O.Box 2002, Allen, TX 75013; (888) 397-3742; www.experian.com

Equifax - P.O.Box 740241,Atlanta, GA 30374; (800) 685-1111; www.equifax.com

When you receive your credit reports, check each one carefully. They are not the same. Each credit bureau should include a dispute form that you can return to correct your credit report. Be sure to include a letter or note asking to receive a corrected credit report within 30 days. If you dont receive the report, insist your report be verified and corrected.

After your credit report is in good shape and you know your FICO score, the next step is to get pre-approved for a loan in writing (disregard any lender who suggests pre-qualification; its meaningless).

There are three basic types of home loan lenders to consult:

1. The popularity of mortgage brokers, who are middlepersons between borrowers and lenders has grown in the last few years. Although they dont use their own funds, mortgage brokers often perform finance miracles, especially by shopping your loan application for funds from out-of-area lenders.

2. Banks, credit unions and savings and loan associations are considered direct lenders although they often quickly sell their locally originated loans into the secondary mortgage market, controlled by Fannie Mae and Freddie Mac.

3. Major home loan lenders Countrywide, Wells Fargo Mortgage and Home Side Lending lend their own funds and later sell off your home loan into secondary mortgage market.

Do you have a bankruptcy foreclosure or other major financial pitfall in your credit history? If so, perhaps no mortgage lender will approve your loan until you re-establish your credit for at least two years. However, if you want to buy a house or condo now there are several methods to consider.

	Home seller carry-back financing. The easiest way to buy a home is with seller financing. The best candidates for seller financing are vacant homes, homes listed for sale at least 60 days and free-and-clear homes being sold by elderly sellers who need generous retirement income.
	Take over an existing mortgage. Some sellers want to be relieved of their mortgage payments. If you find those payments affordable, you may want to buy either subject to the existing mortgage or by assuming the old mortgage.
	Lease a home with an option to buy. An especially beneficial way to buy a home while you work on cleaning up bad credit is leasing a house or condo with an option to buy. Be sure to negotiate a substantial rent credit toward the down payment of at least 25% of the monthly rent paid. After a year or two, you will probably have a large enough rent credit to be able to buy the residence.

Removing some of the mystery about credit scoring

Last year, Fair, Isaac Co., the major provider of credit scoring systems to lenders, announced that it would reveal how it determines credit scores, also known as FICO scores. Many lenders use these scores to predict how likely a borrower is to repay a loan.

There are five main factors that influence your FICO score:

Payment history

Payment history accounts for about 35 percent of your score. Paying your bills on time is the best way for you to receive a high FICO score.

Your current debt

About 30 percent of your score is determined by how much you currently owe. If you owe a lot of money in relation to your available credit limits, you may appear to be overextended. The key is to keep balances low on unsecured debt such as credit cards. Even closing unused accounts may not improve your score.

How long you've had credit

The longer youve had credit and handled it responsibly, the better your FICO score will be. The length of your credit history accounts for 15 percent of your score.

Applications for new credit

Applying for several credit accounts in a short period of time could indicate that you may soon be overextended and may lower your score. This is about 10 percent of your score.

Your credit mix

The final 10 percent of your score is determined by the kinds of credit accounts you have credit cards, retail accounts, installment loans, finance company loans and mortgage loans and how many of each.

There are other elements, mostly subcategories of the items listed above, that go into your score, including your occupations, time at present job, time at your current address, home ownership, and much more.

Explore factors affecting your FICO score

What might happen to my FICO score if I

Pay my bills on time?

Declare bankruptcy?

Pay off some of my credit card balance?

Open a new account?

Make a late payment?

Discover how you can improve your FICO score to help qualify for a better interest rate and what actions may make your FICO score drop.

Why should you know your credit score?

Because lenders do. Banks and other lenders check your FICO score when you apply for, and use credit. Knowing your score puts you one step ahead when you apply for a mortgage, loan or other credit.

See how improving your score can drive interest savings!

Explore national and state average APRs, and calculate how much you can save by taking action to improve your FICO score.

How to get a better score.

Find out how scoring works, and how to improve your score straight from Fair, Isaac, the developers of FICO scores.

For more information or to obtain a copy of your FICO score, visit www.fairisaac.com The cost is $12.95. Most if not all lenders use FICO credit scoring system. See how lenders see you!

How Credit Scoring Helps You

Credit scores give lenders a fast, objective measurement of your credit risk. Before the use of scoring, the credit granting process could be slow, inconsistent and unfairly biased.

Credit scores especially FICO scores, the most widely used credit bureau scores have made big improvements in the credit process. Because of credit scores:

People can get loans faster.

Scores can be delivered almost instantaneously, helping lenders speed up loan approvals. Today many credit decisions can be made within minutes. Even a mortgage application can be approved in hours instead of weeks for borrowers who score above a lender's "score cutoff." Scoring also allows retail stores, Internet sites and other lenders to make "instant credit" decisions.

Credit decisions are fairer.

Using credit scoring, lenders can focus only on the facts related to credit risk, rather than their personal feelings. Factors like your gender, race, religion, nationality and marital status are not considered by credit scoring.

Credit "mistakes" count for less.

If you have had poor credit performance in the past, credit scoring doesn't let that haunt you forever. Past credit problems fade as time passes and as recent good payment patterns show up on your credit report. Unlike so-called "knock out rules" that turn down borrowers based solely on a past problem in their file, credit scoring weighs all of the credit-related information, both good and bad, in your credit report.

More credit is available.

Lenders who use credit scoring can approve more loans, because credit scoring gives them more precise information on which to base credit decisions. It allows lenders to identify individuals who are likely to perform well in the future, even though their credit report shows past problems. Even people whose scores are lower than a lender's cutoff for "automatic approval" benefit from scoring. Many lenders offer a choice of credit products geared to different risk levels. Most have their own separate guidelines, so if you are turned down by one lender, another may approve your loan. The use of credit scores gives lenders the confidence to offer credit to more people, since they have a better understanding of the risk they are taking on.

Credit rates are lower overall.

With more credit available, the cost of credit for borrowers decreases. Automated credit processes, including credit scoring, make the credit granting process more efficient and less costly for lenders, who in turn have passed savings on to their customers. And by controlling credit losses using scoring, lenders can make rates lower overall. Mortgage rates are lower in the United States than in Europe, for example, in part because of the information including credit scores available to lenders here. Knowing and improving your score can also lead to more favorable interest rates. Check out an example of the national averages of interest rates and see exactly how much money you might be able to save.

How do interest rates relate to you score?

Lenders use the FICO score as a component in how they set the interest rate they will charge for a loan. Now on myFICO.com, you can see today's average rates by FICO score range and learn how responsible credit management can result in interest rate savings over time.

The tables below show average annual percentage rates (APR) by FICO score ranges frequently used by lenders. The difference in these rates illustrates how your FICO score helps determine what you will pay for your loan. The actual interest rate for which you qualify may depend on several other important factors in addition to a credit score, such as your income, down payment, debt-to-income ratios, additional credit related evaluations and other lender-specific criteria.

Use the Loan Savings Calculator to find out how much money you could save by improving your score.

Stay in touch with the most current rates by FICO score as myFICO.com updates these rate tables each business day.

Interest rates for FICO scores between 500-619 are only displayed for 30-year fixed mortgages since the availability of other loan types in this range is limited. Check with your lender for rates on these other loan options. Most of the home mortgage options shown above are for single family, owner occupied homes with loan terms of 1.0 point and an 80% loan-to-value ratio.

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