ultimate insult: 9% mortgage
Many homebuyers don't qualify for the very best rate.
Fix your credit score to improve your chances. Mortgage rates are
still attractive. But rates around 6 percent are off-limits to you,
and for just one reason: Your credit stinks.
Your credit score, or FICO score, is a rating created
by Fair Isaac to boil down all of that information in your credit
report into three digits, ranging from 300 to 800. Lenders rely
heavily on these scores to quickly tell them how likely potential
borrowers are to pay back their loans on time.
The higher the score the better -- the lower the
risk to the lender and the lower your interest rate.
"If you have good credit, you're in the driver's
seat," said Keith Gumbinger, a vice president for HSH Associates,
explaining that anyone with a score above 700 is considered to have
It's quite another story, however, once your score
falls below 620, which is what most lenders consider sub prime and
is where roughly a quarter of the country falls.
Recently, borrowers with a credit score of 720 and
above could qualify for a 30-year fixed loan with a 5.9 percent
rate. Those with a credit score of 560 to 619 would pay 8.53 percent
for the same loan.
"Your score means everything," said Chris
Viale, general manager of Cambridge Credit Counseling. "You
could easily be paying hundreds of dollars a month more in interest
because of your score."
What's in a score?
When you take out any kind of credit that information is reported
to the three major credit bureaus -- Equifax, Experian and TransUnion.
As long as you've had one line of credit open for at least six months
and one line of credit that has been updated within the past six
months, you have a credit score.
Because each of the three credit bureaus maintains
an individual report for you, you actually have three scores. They
should be similar, as they're calculated with the same Fair Isaac
formula. (If they're drastically different, it's probably because
of an error.)
Your score is affected by a number of things, including
your payment history and how much you owe, among other things.
Making the grade
Under the Fair Credit Reporting Act, you can request a free copy
of your credit report from all three of credit bureaus if you've
been denied credit. If you want to see your credit score, however,
you'll have to pay for it.
The only site where you can access credit scores
from all three bureaus is myFICO.com, which is run by Fair Isaac.
It's $12.95 per score, and you'll get an explanation of how your
score is likely to affect your credit, information about what is
helping and hurting your score and a snapshot of your credit history.
(For $39.95 you get all three, as well as your full-blown credit
Make sure to check for errors, because "90 percent
of all credit reports have errors," said Viale.
Some errors are obvious -- such as an account that
doesn't belong to you -- while others are less easy to pick out.
(I checked my own score and found that the credit limit on my home
equity line was $30,000 less than it really is, making it look like
I'm near my limit when I'm not even close.)
Next, see if you can consolidate some accounts or
transfer balances on accounts where you're near the limit. For example,
if you have several department store credit cards near their max,
you might benefit by moving all three balances to a low-interest
credit card with a higher limit, said Viale, noting that this could
improve your score by as much as 30 points.
Article continued at http://money.cnn.com/2003/09/18/pf/yourhome/creditscore_and_mortgages/index.htm