With mortgage interest rates near record lows, you may want to buy a home before rates go higher. Can you qualify for a purchase loan? Your FICO® scores may be the key.
Over 50 years ago, The Fair Isaac Company created credit scoring so that lenders can understand at a glance how much risk you pose as a borrower. “FICO” scores are determined by a software algorithm that analyzes your job, credit, income-to-debt ratios, spending habits and payment history. Base scores range between 300 and 850, and borrowers with the highest scores get the best credit terms.
Each credit reporting bureau, Experian, TransUnion, and Equifax, calculates its own score, so review all your credit reports for errors and get them resolved as quickly as possible. Visit http://www.annualcreditreport.com to get free one-time copies of your credit reports. Credit scores aren’t free, but you can get scores from all three bureaus at www.myfico.com for under $60.
FICO scores change with new information. Prevent lower scores by doing the following:
- Pay all bills on time.
- Pay more than the minimum payment required.
- Reduce credit card debt to improve income-to-debt ratios.
- Don’t open new accounts to consolidate debt or close credit card accounts.
- Use no more than 30% of your available credit on any card.
- Don’t change jobs immediately before applying for a mortgage loan.
Mortgage lenders are most interested in your ability to repay the loan. Long-term employment in the same field and on-time credit payments are the best ways to build and protect your credit scores.