Credit history is a major part in the decision making process of a loan approval. You should start 6-12 months, reviewing and repairing your credit before purchasing your new home. Banks and Lenders establish interest rates based on the borrowers payment history, work history and FICO or Credit Score.
If you were denied credit, you are entitled to one free credit report, per credit bureau. If not denied, you will pay a small fee for each credit report. The three national credit bureaus are:
• Trans Union Corporation 800-916-8800 www.transunion.com
• Equifax Credit Information Services, Inc. 800-685-1111 www.equifax.com
• Experian 800-682-7654 www.experian.com
• Fair, Isaac and Company (FICO) www.MyFICO.com
“FICO” and Credit Scoring Fair, Isaac and Company (FICO) –They utilize your credit history, income, outstanding debt, debt utilization over the years and indicate financial behavior to determine how likely you are to pay your bills on time, or if at all.
A numerical score is then developed, typically ranging form 300 to 850, with the low end of the scale indicating a poor credit risk. A lower credit score will place you in the “Sub-Prime” market which is a higher interest rate.
“Scoring”
35% Of the score is determined by payments histories on your credit accounts, with recent history weighted a bit more heavily than the distant past
30% Is based upon the amount of debt you have outstanding with all creditors
15% Based on length of being a credit user (longer the better)
10% Recent history (new loans & lines of credit in recent months)
10% Installment loans (auto payments), leases, mortgages, credit cards, student loans, etc. (this is all calculated).
Employment history, address or zip code, and how often you have moved in addition to other public and private information about you may affect your Score.
Bankruptcy, Credit Counseling Services, Judgments, Tax Liens and Non Payment of Child Support are negative on your credit scoring.
Frequent Inquiries on your credit (applying for credit, auto insurances, etc.).
Having a high percentage of credit limits available can improve your score.
Be careful - closing unused revolving accounts may not improve your score.
Example #1
Example #2
Credit Limit
Balance
Credit Limit
Balance
Credit A
1,000
0
1,500
0
Credit B
2,500
1,700
2,500
1,700
Credit C
5,000
0
Totals
$8,500
$1,700
$3,500
$1,700
80% Available Credit
51% Available Credit
Note: A higher % of credit available has a better impact on your credit score.
It is important to be selective when releasing your Social Security Number. Shopping for a Great Deal may not be a good deal for you in the end.
Credit Information