FICO Score and Credit Report Basics
FICO Score reflects your credit history as a number. Credit Reports show your past and present loans, credit and credit cards. The high amount borrowed, current amount owed and if you pay on time is then listed. Some Credit Unions and private institutions do not report to the Big 3 credit bureaus. Each person’s report has a numerical rating between 200 and 850 called the FICO Score. The FICO Score is determined by the items listed below and an undisclosed formula by the Big 3 credit bureaus: Equifax, TransUnion and Experian. Your FICO Score is not included in a free credit report.
The following factors affect your FICO Score:
Your payment history for the last 7 years:
- How much do you owe? (compared to credit available)
- Are you over-extended? (is everything maxed)
- Open or Closed Accounts? (how much could you charge later)
- The length of your credit history? (older is better)
- How much new credit do you have? (you might charge later)
- What types of credit do you use? (variety is good compared to 6 car loans)
- Do you have any late payments? (once late vs habitually late)
- Do you have any collection accounts? (medical vs. other)
- Do you have a BK, Foreclosure, Government Lien or a Short Sale? (different guidelines)
1 in 4 Credit Reports Have Errors
I saw a television show recently that said 25% of all credit reports have mistakes. They also said that 5% of credit reports have major errors effecting the ability to get a loan, a low interest rate and even housing. Cost of auto and home insurance is also based on your FICO score. Because accuracy is so important, you probably want to get your free annual report now, just to check for errors ASAP! Most credit repair companies won’t satisfy you with their efforts. Correcting mistakes is not hard so you may want to call creditors and reporting companies yourself. Don’t get me wrong- Identity Fraud correction is not easy and can take years!
If you meet with a home lender, they’ll usually charge $50-$75 for the full credit report including FICO Score. You then own it- so get a copy. At your appointment you will discuss your home buying ability and if improving your credit score is even necessary. Make sure you mention negative credit items, even if they’re not on your credit report, when talking to a lender. That will give them time to investigate and avoid a last-minute judgement or lien surprise.
FICO Score isn’t everything for home loan approval but negative items lower your score a lot. 99% of all housing loans are sold to investors after a lending company has originated them. Loans are sold in what’s called the Secondary Market and Fannie Mae Guidelines are the industry standard used to rate a loan. Past BK, Foreclosure, Tax Lein and Short Sale applicant have unique guidelines from Fannie Mae. Example: BK – you can get a loan after 1 year (from date of charge-off) if you have two ‘good-pay’ open lines of credit; If you have just done a short sale on your home, you may buy another house immediately if the payments were kept current; If you defaulted, you’ll need to wait 2-7 years depending on the type of loan you want now (VA, FHA or Conventional) and your down payment amount.
Citibank Card Holders: I love a website called www.Moneymagnify.com If you go to it you can read about credit repair company scams and download a free credit repair booklet. If you are a Citi-Card holder they will give you a credit report with your FICO score for free. It’s also available on the Citi-app too. Take your credit report copy with you to the home lender to possibly save some money.