FICO Score and Credit Report Basics
Home Buyer Credit Report and FICO Score Basics
A Home Buyer’s Credit and FICO Score determine if a buyer can get a loan. On your credit report there is a number that reflects your credit history. Each person’s credit report has a numerical rating between 200 and 850 called the FICO Score. The higher the FICO Score, the better the credit.
A credit report includes the dates, account numbers and payment history of past and present loans, credit cards, collections and leins. The high amount borrowed, current amount owed and if the account is open or closed.
Some Credit Unions and private institutions do not report to the Big 3 credit bureaus. 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.
What Determines Your FICO Score:
Short Answer- a computer. Long Answer- no one really knows what the EXACT formula is. The list below are FACTORS used in calculations.
- 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? (did you get card to charge later)
- What types of credit do you use? (variety is better than 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? (These have different guidelines for a home loan)
Why FICO Scores Matter
FICO Scores matter in MOST loans because Lenders only keep 1% of the loans they originate and 99% are sold to investors on the Secondary Market. Fanny Mae has established guidelines for the Secondary Market and most lenders follow them so their loans are saleable. Past BK’s, Foreclosures, Tax Leins and Short Sales don’t conform to Fannie Mae Guidelines- with exceptions. Ask a lender questions. Programs are always changing. There’s private loan money available- usually at higher interest rates.
Exception Examples: BK’s – you can get a home loan after 1 year (from date of charge-off) if you have two ‘good-pay’ open lines of credit; Short Sale’s- You may buy a house immediately if the payments were kept current; Defaulted Loans- 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.
CHECK YOUR CREDIT REPORT!
A recent news show reported that 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. Home loans, vehicle loans and home insurance are all based on your FICO Score. Get a FREE credit report yearly and check for and dispute errors. Our experience is that most credit repair companies fail to satisfy their customers with their efforts. Correcting a mistake is not hard so you may want to contact creditors and reporting agencies yourself. Know that when trying to correct Identity-Theft Fraud, it is not easy and can take years!
Meeting With A Lender
When you meet with a home lender, they charge $50-$100 for the full credit report including FICO Score. You then own it- so get a copy! You will discuss your home buying ability and if improving your credit score is needed. Disclose negative credit items even if they’re not on your credit report so there are no surprises. We suggest: In-State, live-body and experienced home lenders. Banks seem to take forever. Morgage Bankers are less expensive than Mortgage Brokers. Brokers have more variety in their loan programs. Get quotes from at least 3 Lenders comparing rates, fees and timelines but dont let them all run your credit.
TIPS- Take your current credit report copy with you to the home lender to possibly save some money. Citi-Bank Card Holders can get a free credit report each year with FICO score. www.cardbenefits.citi.com
Blog Written By: Kurt Grosse, Realty One Group If you are considering Southern Nevada Real Estate, feel free to contact us. We can refer you to a couple lenders we still like after all these years.