| How credit scores affect mortgage rates | | Page| 1 | 2 | |
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Scrutinize
your credit reports
Of course, you need to make sure that your credit
score is the one you've truly earned. If there are
mistakes on your credit reports, they will translate
into lower scores.
At least six months before you intend
to apply for a loan, get updated copies of your credit
reports from Experian, Equifax and TransUnion, plus
a copy of your FICO score. All borrowers are entitled
to one free copy of each credit report annually through
the www.annualcreditreport.com
Web site. Through the www.myfico.com
Web site, Fair Isaac charges $47.85 for the three
reports plus their FICO scores that are based on those
reports. The budget-minded might opt for the $15.95
choice, for one of their credit reports and a single
FICO score. If you spot problems, you can always go
back and order the other two individually without
spending more than their three-report package.
Review each of your credit reports for errors. Sometimes
other people's credit information can mistakenly make
its way to your credit report.
Common names and family members' information
can show up where they don't belong. There also can
be errors about your payment history -- such as a
notation of a missed payment when you can prove that
you actually paid the bill.
Contact the lender involved with the
error to straighten out the record. Normally it can
take months for that information to make its way into
your FICO score, according to Craig Watts, public
affairs manager for Fair Isaac Corp. But if you're
already in the mortgage application process, your
lender can request that the credit report companies
do a "rapid rescoring" of your credit and
have such errors corrected within 72 hours, he says.
Lenders pay the credit bureaus for that service.
Bump
up your score
You also can improve your FICO score by paying down
outstanding balances on your credit cards, says Watts.
"If you're only interested in improving
your FICO score, you should start with accounts that
are closest to the credit limits." Even if you
never miss a payment, borrowing a large percentage
of the credit that is available to you hurts your
credit score.
Financial advisers usually recommend
paying off the credit lines that have the highest
interest rates first, and Watts recommends that approach
if you also use the interest savings to pay down your
closest-to-the-limit debts.
Don't
close any accounts
What you should not do in hopes of boosting your credit
score is close any credit accounts.
"Closing an account will never
improve a FICO score, and in some cases it can inflict
harm on a credit score," says Watts. That's because,
if you've closed one or two credit accounts, but not
reduced your overall borrowing, you've boosted your
ratio of indebtedness compared to the total amount
of credit available.
Lenders prefer to
see that you have lots of credit available -- but relatively little of it actually
borrowed.
Elizabeth Razzi is
a freelance personal finance reporter and author of
"The Fearless Home seller." She is based
in the Washington, D.C., area.
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How about you? Are you concerned about your mortgage?
Pleased with the one you have? Ready to buy? . |
-- Posted: March 19, 2007 |
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