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Understanding Your Credit Rating

Buying a home is the one time in your life when your financial past can REALLY come back to haunt you.

When deciding how much of home loan that they will give you, the mortgage companies will take into account your credit rating, because the lender wants to make sure they will get their money back. They will use your credit payment history as a good indication of the likelihood of you not paying on time.

Now more than ever, good credit history and ratings are critical to getting a home loan, and the credit ranks high in determining whether you get a mortgage, or the rate you get for mortgages.

So before you do anything else, check your credit rating before approaching a lender for a loan. If there are any problems, resolve them before applying; if there are any issues, be prepared to respond to any questions the lender may have. A lender will want to make sure you are not a risky creditor.

Ask yourself the following questions to determine if a lender would deem you a risky creditor:

• If you have a current mortgage: Have you let payments go past due by date without paying?
• Revolving Credit - You should have no payments more than 60 days past the due date and very few more than 30 days past due.
• Installment Credit -- You should have no payments more than 60 days past the due date and very few more than 30 days past due.

Find out how you rank by ordering a credit report. Fees vary from $2 to $12 although in some states it may be free. The lender will receive the same information as you do so there will be no surprises. Companies that you do business with send credit information about you weekly, monthly or quarterly to credit reporting agencies to update their systems.

What’s FICO and Why Is It So Important?

The most important figure is the FICO number, which is basically your credit rating. The scale for rating goes from 300 to 800, with 800 a perfect score. Scores higher than 650-660 are considered good, but anything below this will need some explanation. If your score is over 700, you have a good shot of being approved.

If your score is under 600 you will most likely have difficulty in securing financing and, if you do, you will probably be penalized with a higher interest rate because you are deemed a risk.

There can be several reasons your rating is low. Your revolving credit or mortgage payment may be consistently late or you may have defaulted on a car or other loan in the past. You may not have paid off your medical bills on time. Surprisingly enough, if you have obtained very little credit in you life, you may also have a low rating because there is very little history, so the lender must assume the worst case.

There are basically three major national credit companies from which you can obtain your credit report. You may be able to do this by phone. If you do so in writing, be sure to include your name, address, Social Security Number and you may also need to include a copy of your driver's license. Check their Web site.

Experian
P.O Box 2104
Allen, Texas75013-3742
1-888-397-3742

Trans Union
P.O Box 390
Springfield, PA 19064-390
1-800-888-4213

Equifax
P.O Box 105873
Atlanta, GA 30348
1-800-685-1111