WHAT HOME BUYERS SHOULD KNOW ABOUT FICO® SCORES
How do credit scores affect home buyers?
Your credit score or FICO® score (Fair Isaac & Co.) may determine if you get your dream home, or not! That's because lenders consider credit scores to be the number one measure of credit worthiness and it's the first thing they check when evaluating a home loan application.
The FICO® score can range from 350 to 850. Typically, lenders consider any score above 700 to be a good number. A score around 600 would cause concern and anything lower than that would cause a deeper examination of the applicant's credit worthiness. The median FICO® Score in the U.S. is 723. Find out where you rank by going to www.myfico.com
HINTS: Here are the main factors that influence your FICO® score.
The reason credit scores are so important is because there's a proven relationship between credit scores and mortgage delinquencies. Almost half of borrowers with scores below 550 became delinquent at least once during their mortgage. On the other hand, only two out of every 10,000 borrowers with scores above eight hundred became delinquent.
- Payment history accounts for about 35 percent of your score.
- About 30 percent of your score is determined by how much you owe.
- The length of your credit history accounts for about 15 percent of your score.
- 10 percent of your credit score is measured by applications for new credit.
- Your credit mix or kinds of credit your have makes up about 10 percent of your FICO® score.
- Other elements include your occupation, time at present job, time at your current address and home ownership
Credit scores are a good tool but they're not perfect. The biggest flaw of the credit score system is that credit reports aren't always accurate. A reporting agency must remove any entry you prove is incorrect. But, it can be a long and tiring process that will affect your credit in the meantime. Also, FICO® scores may not take into account special circumstances, such as a sudden job loss, an illness or a death in the family that left you financially strapped for a period of time.
Three major credit bureaus report credit scores - Experian, Equifax and TransUnion. These companies collect information from creditors and add any new data to existing information on file to create a month-by-month credit history of individual consumers. They sell reports to individuals or companies to evaluate you for credit risk, employment, insurance, licensing or any legitimate business need. The data that credit bureaus keep on file may include:
- Consumer identification such as full name, address, employment, employer and spouse's name.
- Credit history including account numbers, date initiated, amount borrowed, terms and type of credit, along with the number of payments, outstanding balances, amounts past due and the frequency of lateness.
- Information from the public record such as lawsuits, judgments, tax liens and bankruptcies.
- Protect your credit and boost your FICO® score by paying your bills on time.
- Negative credit information remains on the record for seven years.
- Credit inquiries remain on record for 18 months. So, don't apply for credit or check your credit score too often.
- Consider all options before declaring bankruptcy because it will remain on record for ten years.
- Don't open unnecessary credit accounts or have more credit accounts than you need.
- Pay off your credit card in full each month or keep the balance as low as possible.
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