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FICO Scores: Are They So Important for Getting a Mortgage?
During the last few decades, we moved many times from place to
place, buying and selling houses and other property. To my
knowledge, not even the most respectable bank that carried our
mortgage ever had anything to do with any FICO score. I first
heard "FICO score" mentioned, about six or seven years ago, when
one of my children worked for a mortgage company, and I found
out from him that FICO score has been around since the 1950s,
after Fair, Isaac and Co. (therefore the acronym FICO) developed
a certain method to determine the credit risks of borrowers.
FICO scores range from 300 to 850, the higher the better. The
majority of scores are in the levels of 600-700. The desirable
ones are 720 and higher. FICO scores are designed to measure the
risk of delinquency by considering several past and present
issues, such as the length of credit history, punctuality of
payment, current debt including tax liens and money owed as a
result of a court judgment, recent searches by the consumer to
obtain credit, and the amount of credit received up to date. The
exact formula for obtaining the FICO scores, however, is held
secret and--it beats me, but--this conduct is accepted by the
Federal Trade Commission.
Three nationwide companies, Experian, Equifax, and TransUnion,
use the FICO scores for credit reporting. All three of these
companies are required by law to provide the consumer--you--with
a free credit report every twelve months.
You might ask: "If we have the FICO scores, then why do we have
a credit report? Aren't FICO scores enough?" A credit report is
more than a FICO score. A credit report gives extra information
on you, as to where you live and have lived, whether you had a
run-in with the law, and if you were sued or filed for
bankruptcy. The FICO score, as a general rule, is attached to
the end of a credit report.
Your credit report is important. The information in it has to be
up to date and correct, because it will be used not only for the
purchases you make, but also when you are applying for a job.
You need to get your credit score and take measures if the
information in it is not correct or has become stale. Consumer
reporting companies are required by law to correct anything
wrong or inconsistent after they investigate your claims.
To obtain your free credit report, you might consider writing to
each one of the three companies (Experian, Equifax, and
TransUnion) and getting a separate credit report from each one.
Don't be surprised if you find small differences among these
reports because each company does its own calculating in its own
way. Getting all three reports is especially necessary if you
find something inconsistent in your credit history and you need
to correct it with all three of them.
If you feel your credit history is good, the best way to get
your free credit report is getting a form from Annual Credit
Report Request Service (http://ftc.gov/credit), and filling and
sending it to P.O. Box 105281, Atlanta, GA 30348-5281; or if you
wish, you can get it online from annualcreditreport.com.
Do not, at any time, believe in the companies or online sites
that promise to get you your free credit report. Most of them
eventually ask for fees and start charging your credit cards,
because you have accepted their services and they have your data
in their hands.
Does every lender pay attention to the FICO score? Luckily, not
all; although most may. In the beginning, FICO scores had little
or nothing to do with mortgage lending. About five or six years
ago, however, mortgage lenders realized that there was a certain
connection between the negligent behaviors of borrowers and
their credit scores.
After a couple of years of heavily relying on the FICO scores,
mortgage companies are beginning to change their attitudes on
the subject again. Lenders like Fannie Mae and some private
mortgage companies do their own investigations as well as taking
into account your credit report as a whole.
A few tips before applying for a mortgage:
* Do not leave or change your job, especially if you have worked
there for some time and you are not replacing it with a more
secure and better paying job.
* Make sure your credit cards are not charged to the max.
* Do not ever be late in paying your existing mortgage. At
least, don't be late for more than a month.
* Discuss and bargain with small lenders (Dept. Stores etc.),
businesses, and collection agencies to remove any late payments.
* If you have a federal student loan, seek to remove "default"
or "collection" labels from the loan's history.
* Get into the habit of paying your bills on time.
About the author:
Joy Cagil is an author on a site for Writers
(http://www.Writing.Com/) Her education is in foreign languages
and linguistics. In her background are varied subjects such as
psychology, mental health, and visual arts. She has been taking
courses on money and finance matters during the last couple of
years. Her portfolio can be found at
http://www.Writing.Com/authors/joycag
Written by: Joy Cagil
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