Credit Report, Credit Score, & Your FICO^® Score

In addition to other aspects of your personal financial profile, your credit report and credit score help determine whether you’ll qualify for the lowest home loan interest rate possible or a more expensive sub-prime or non-conforming home loan.  The difference in interest rates can mean thousands of dollars a year or tens of thousands over the life of your home loan.  For this reason it’s imperative you know your credit score and understand your credit report and how it affects your financial profile and home financing options.

The first thing to know is how to get a copy your credit report.  There are several online services which can provide your credit report and credit score, but most require you to sign up for their credit monitoring services at a monthly fee.  The one place online to truly get a free copy of your credit report is Annual Credit Report.  Free credit reports requested online are typically viewable immediately upon authentication of identity, and there is no fee or hard sell for any credit monitoring, credit repair or credit protection services.

You have the right under federal law to obtain your credit report once per year from each of the three credit reporting agencies:

• Equifax - (800) 685-1111 or visit www.equifax.com
• Transunion - (800) 888-4213 orvisit www.transunion.com
• Experian - (888) 397-3742 or visit www.experian.com

Pull your credit report from one agency at a time every four months.  This strategy provides you consistent access to the information your creditors see for free.  This method of credit management and reporting is not only good for home loan education, but your financial planning as well.

Once you have your credit report, it’s important to review it in detail and ensure its accuracy.  Late payments, non-payment, bankruptcy, liens or judgments will negatively affect your credit score.  In addition it’s important to make sure that each credit account listed is accurate and up to date.  It’s not uncommon to have errors on your credit report which may cause you unknown financial harm.

What is my FICO^® and how do I estimate my credit score?

A FICO^® score (developed by the Fair Isaac Corporation in the 1980’s) is the credit score most mortgage lenders use to determine your credit worthiness (risk of default on your home loan).  You have three FICO^® scores, one from each of the three bureaus which maintain and report your credit profile.  Your credit score is derived from various aspects of your credit history and financial profile:

• 35% attributable to your payment history
• 30% attributable to amounts you owe
• 15% attributable to the length of your credit history
• 10% attributable to new credit accounts established
• 10% attributable to types of credit used

A FICO^® score estimates the future risk of loan default based on credit report data, financial profile, and how responsibly you manage your finances and credit accounts.  The higher the credit score, the lower the risk to the mortgage lender.  A credit score doesn't determine who will be a “good” or “bad” borrower.  Each mortgage lender has its own strategy to determine the borrower’s credit worthiness and there is no single “cutoff score” used by all mortgage lenders.

You can estimate your FICO^® score by visiting the following website developed by MyFico.  It’s important to estimate your credit score as accurately as possible as you'll use it for the online home loan rate quote request process.  The more accurate you are on your credit score, the more accurate your home loan rate quote will be.

A FICO^® credit score ranges from 300 (worst possible score) to 850 (best possible score).  Every lender has different criteria for rating your credit score.  For home loan advisors to quote your home loan interest rate online through LoanEXA, you’ll need to estimate your credit score as follows:

Your FICO^® score may vary between the credit reporting agencies as they each may have slightly different information and parameters for scoring.  The Fair Isaac system attempts to make your credit score as consistent as possible across the three credit reporting bureaus.

How can I improve my credit score?

You can improve your FICO^® score, but it takes time, responsible financial management, and consistency.  The following tips should help you raise your credit score over time:

• Pay your bills on time, get and stay current on overdue bills
• Keep balances on credit cards and revolving credit lines as low as possible, large balances (relative to maximum available credit) have a heavy negative impact on your credit score
• Pay off and manage debt responsibly
• Don’t close unused credit cards – length of credit history is a good way to keep your credit score higher and closing an older account may actually lower your credit score
• Don’t open new credit cards or revolving credit accounts unless absolutely necessary
• Shop loans as expediently as possible, don’t stretch the number of times your credit report is pulled by a home loan advisor over multiple months

The simple truth is a higher credit score saves you money and speeds up the home loan approval process.  You should always manage your credit report and financial profile wisely and consistently try to improve your credit score.  Learn more at MyFico.com.

Avoid credit repair agencies who charge fees claiming to improve your credit by removing negative marks on your credit report.  There are no such agencies which can force a credit reporting bureau to remove negative marks provided they are accurate, and many credit repair agencies are nothing more than scams.