Good credit scores, in most situations, indicate a lesser risk to lenders while granting new or extra credit to a customer. A credit score is a numerical representation of the credit risk you pose at a certain point in time.
In their mortgage appraisal process, lenders evaluate credit scores together with a range of other forms of information. These include the data you supply during the credit application process, such as your income, the length of time you've lived at your current address, and other debts/obligations you may have.
Why your score is what it is
Short for Fair Isaac Corporation, FICO score is a statistic used to assess someone's creditworthiness. Financial organizations and lenders use this to assess how much credit and interest rate they may provide a borrower. FICO scores vary between 300 and 850, with higher numbers indicating a stronger credit.
FICO likes to hold everything close to their chest when determining your score. No one outside the organization has any idea how the scores are calculated. However, these are the elements we do know they evaluate when calculating your credit score:
- Previous payment history (35 percent)
- Credit history length (15 percent)
- Debts owing (30 percent)
- Credit mix (10 percent)
- New credit card (10 percent)
An applicant with a higher credit score has a better chance of getting approved and having access to lower rates. A 660 FICO score or higher is considered good by lenders, while scores of 650 to 719 are considered "Good" on the official FICO scale.
Each time you get a new line of credit, it's likely that your credit score will go down temporarily because the lender may assume you are having financial problems and are trying to obtain more credit than you really need. If this continues to happen, it will affect your overall score because creditors consider both how much debt you have and how frequently you borrow.
Getting Hold of Your Report and Score
It's critical to evaluate all three credit reports you receive from Equifax (800-685-1111; www.equifax.com), TransUnion (800-888-4213; www.transunion.com), and Experian (800-888-4213; www.experian.com) before applying for a mortgage. AnnualCreditReport.com offers free copies of every credit report every 12 months.
If you find discrepancies in your credit report, you should contact the credit reporting companies as soon as possible. An investigation into a credit dispute will typically take anywhere from 30 to 45 days (depending on whether you provide additional information). Furthermore, if the initial study results do not meet your expectations, you may need to attempt again or try a different strategy altogether to solve the problem.
90 percent of leading lenders utilize FICO scores. There are several different "credit scores" available to consumers, which is why it's critical to understand which one you receive and how lenders consider them - which makes it more critical than ever before to know your FICO Score.
You may find out your FICO score at www.myFICO.com or any of the other hundreds of options accessible but with caution. Here are the details you will receive.
You will also receive tailor-made suggestions for increasing your FICO rating over time.
The FICO scores you currently have from each of these three credit agencies, as well as the credit reports that go into determining your FICO score.
A breakdown of your ratings.
Your credit score's positive and negative aspects, as well as how lenders assess your credit risk.
- A FICO score emulator evaluates how certain activities, such as clearing off your credit card debt, would affect your score.
You may also get up-to-date information on average house loan rates based on various FICO credit score levels. Looking to boost your score? Read ways you can do that here.
Free Credit Score or Scam?
Several websites promise to offer free credit scores. Unfortunately, there is a major problem with many of them. They aren't truly free.
When visitors sign up for credit monitoring services, they can sometimes inadvertently enroll in one that requires a monthly subscription charge. As a result, Federal Trade Commission sought to stop this activity in 2010. Federal law mandates "free" websites to list the AnnualCreditReport.com as the only place where you can get free credit reports (However, it is not available for free credit scores).
Credit monitoring firms have become increasingly adept at evading these notifications. FreeCreditReport.com, one of the most popular sites, started selling credit reports for a dollar (and then sending $1 to a charitable foundation). According to the New York Times, consumers who sought scores on their credit report got a no-cost trial membership to a service that monitors their credit monthly.
Each month they would be billed $14.95 if they didn't withdraw the request within one week. As for FreeCreditReport.com, it is currently explicitly touted as "an Experian subsidiary," a reputable credit reporting agency, and promises to be able to deliver credit monitoring free of charge, without "the necessity of a credit card."