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Estimate your monthly mortgage payment, including the principal and interest, property taxes, and HOA. Adjust the values to generate a more accurate rate.
A credit score is a number that indicates how likely a borrower is to repay future debts. The most common credit score is the FICO score which ranges from 300–950. The higher your score, the better.
Most mortgage lenders use scores that come from one of the three private, national credit bureaus: Equifax, Experian and Trans Union who collect and store consumer information electronically in individual consumer credit records. The credit bureaus generate credit scores based on the information in these consumer credit records. Each credit record includes the following data, collected from creditors and public records:
The FICO score is generated by a mathematical formula (called a scoring model) developed by Fair, Isaac Company. To generate a FICO credit score, a credit bureau runs the data in a consumer’s credit record through its FICO scoring model.
Most lenders get credit scores directly from the credit bureaus or from a credit reporting agency that typically gets its scores from the credit bureaus. However, some lenders generate their own credit scores or get credit scores from a custom credit score developer.
Three steps to improve a low credit rating:
1. Pay your bills on time. This is the single most important thing you can do to improve your credit rating. Pay at least the minimum amount required by the date it is due. The faster you start paying your bills on time, the quicker your credit rating will improve.
Tip: On average, lenders would like to see 3–4 open accounts; any combination of charge cards, auto loans, etc. Balances on credit cards should be no more than 33% of your line of credit.
Consider closing accounts you never use. Don’t apply for loans or credit cards that you don’t need. The more you apply for new credit, the more you may appear to be taking on more debt than you can handle, and the lower your credit rating may be.
Limit your department store cards and finance company loans. The more department store cards or finance company loans you have, the lower your credit rating may be.
If you don’t have a credit history, consider opening an account and using it responsibly, making the minimum monthly payments as required. In addition, having a very limited credit history can have a negative effect on a credit rating.
The Federal Trade Commission (FTC) is responsible for enforcing the FCRA. The FTC also publishes consumer-related brochures where you can obtain additional information on credit reports. To contact the FTC, call or write:
Federal Trade Commission
Public Reference Branch
6th Street and Pennsylvania Avenue, NW
Room 130
Washington, DC 20580
Phone: (202)326-2222
Web Sites: www.ftc.gov/bcp/consumer.shtm
The law is very specific about what may and may not be considered in a credit score.
These factors are considered in most credit scoring systems:
These factors are NOT considered in credit scoring systems:
Credit scores speed up the mortgage approval process for most consumers. The truth is that most Americans represent very little risk and have high credit scores. Credit scores help lenders identify—quickly—which consumers are lower risk borrowers. This speeds up the mortgage approval process for most consumers.
Credit scores are not based on human judgment. Credit scores apply the same standards to everyone. Using credit scores helps lenders to treat each consumer objectively. Credit scores are blind to cultural or demographic differences among people.
Whether you are applying for a mortgage to purchase or refinance your home, a good credit history is essential. During the approval process, lenders must determine that you will be able and willing to repay the mortgage debt. To ensure that you will be able to pay off the debt, lenders may look at many factors, including:
To ensure that you will be willing to pay off the debt, lenders typically look at your credit report and credit score. Your credit score predicts how likely you are to repay the mortgage debt.
Lenders will use your credit score to help them determine:
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