Ensuring the accuracy of your credit report before your lender sees it could save you time and money. To qualify for the best loan rates possible, be sure to correct possible inaccuracies before they interfere with your home buying plans. Get your FREE credit report with your FREE trial of Credit Monitoring Service! There's no risk and no obligation, so click here to get yours!
Your FICO score is used by lenders to help them determine the mortgage rate they will offer. Consider, for example, that the average mortgage APR* in 2002 for a consumer with a FICO score of 650 is 8.82%. Compare this to 6.88% for a consumer with a FICO score of 750. What does this mean in terms of real money? Well, for a 30-year fixed mortgage of $150,000, the difference between a FICO score of 650 and 750 could mean a savings of $200 a month, or more than $72,000 over the life of the loan.
The actual interest rates you qualify for will depend on several other important factors, such as your down payment, debt-to-income ratio and other lender-specific criteria in addition to your FICO score. But the motivation for learning your score is pretty clear, isn’t it?
Ghosts from the past…
Since your credit score reflects your credit management history, you
can't improve your history overnight. However, there are some key
steps that you can take to ensure that you have the best score possible
when you're ready to apply for a loan:
1. Get your FICO report 6-12 months before you want to buy a home. That way, you’ll know exactly what potential lenders are going to see. At the same time, if you will have any co-applicant(s) applying with you for a mortgage, ensure that they get their score(s) too. Why? Well, even though FICO scores are generated on an individual basis, each lender will have its own policy for dealing with joint loan applications. For example, some may consider only the lowest score, others the highest, and still others may take an average of the scores. Some may even have their own complicated formulas for evaluating joint applications. The bottom line is that knowing the FICO scores of all co-applicants will prepare you for any situation.
2. Take immediate action where necessary. Getting your FICO score as early as possible can have significant advantages in that if you may have time to improve it by showing better credit management. In other words, start following the tips for improving your score immediately!
3. Rid your credit report of errors. This is also a very important (and often overlooked) step. If you find an error and report it to the credit reporting agencies, they are required to investigate and respond to you within 30 days. Remember that example above showing a 100-point difference in FICO scores resulting in $200 a month in savings? It’s definitely worth your time to check out anything on that credit report that doesn’t look right, isn’t it?
4. Keep your loan-shopping period relatively short. When shopping for a loan, you can go to either a direct lender or a mortgage broker. A direct lender will lend you money directly via a limited variety of in-house loans. A mortgage broker will offer you access to a wide variety of loan products from an average of 40 different lenders at any one time. Regardless of where you get your loan, it is best to do your serious shopping within a span of a couple of weeks, since searching periodically over a long time frame can negatively affect your FICO score.
5.
Monitor your progress. When attempting to improve your score,
check regularly for improvements. Even though building that solid
credit history takes time and patience, when you are buying what is
for most people the single most significant purchase of your life,
the effort will definitely be worth it!
In summary, always remember that when you start to plan for a mortgage,
the first step is to understand your credit health. Knowing your FICO
score early, then working to maintain or improve it throughout the
home-buying process can enhance both the terms of your mortgage and
your long-term financial health.