Credit Scores Are Confusing

Alot of people think they know their credit scores because they get a free report.  But what they don't know is that the three credit reporting companies sometimes give lenders a different number.  Not only that, some lenders use different criteria, so you may think with a 750 you are qualified for the lowest interest rate, but their criteria and risk management is different than other lenders, and you may end up paying an extra point or so.

The three companies are Trans Union, Experian and Equifax.  Their numbers are called FICO scores and they range from 300 to 950.  All this time, I thought they were up to 850; so my score isn't as high as I thought.  Yours may not be either.  The higher the score, the better for a mortgage as it means your risk of default is less. 

If you find out your score is lower than you thought and you get a report and there are no errors on it, then you need to start working on getting it higher.  Pay all your bills on time and even pay more than the minimum.  Close those accounts you don't use, as the more cards you have, the more risk there is you could default.  If you have a credit card that would work at department stores, you don't need the store card.  Pay down high balances, and don't apply for new cards.

If when you go to get a mortgage loan don't just take the first loan offered, shop around for the best loan.  Also if there are errors on your report, get them corrected.  Find out if you put more down, if the interest goes down.  It might be worth coming up with more cash to save interest over 30 year time period. 

The credit industry is confusing, and buyers need to be better informed and educated about how the system works.  Usually an experienced realtor can help you in that department.  Sometimes the realtor knows about all the lenders in your area, what their parameters are and who is easier to work with, so be sure and work with a realtor.  They do more than show houses; they educate you in the complete process of homebuying from shopping, credit, insurance, appraisals, inspectors, and closing.  Since the seller pays their fee, don't be afraid of getting your own realtor and letting them help you through this confusing time.  It might relieve alot of your stress by having this expertise right at your fingertips (by dialing her phone number!!) 

New FICO scoring could change things!

If you want to buy a house, you must stay aware of what your FICO score is.  However now there is going to be a a new way to check it, and it will pick up late property taxes, liens placed on your property, etc.  This may not sound like a big deal.  But...

Scenario.  You make your house payment faithfully every month.  Your servicer takes the money and puts it into the escrow account.  Let's say the tax bill comes, the person who handles this quits, a new person comes in and not trained properly and the taxes don't get paid on time.  That will show up on your FICO score even if you made your payments on time!!

Let's say you own a property that sides to a busy street.  You are good to mow your lawn and your house has great curb appeal.  However, outside your fence by the busy street the weeds grow up and you might even get a pesky letter from the city.  Eventually you get out there and mow, or one day it is mowed and you don't know who did it.  Later when you check your FICO you could find a bad mark for the city having it mowed and putting a lien on your property.  In the past this would not show up.  I sold a trailer park and at closing found out the city had put a $75 lien on my property for weeds outside our fence.  If this new way of doing FICO scores had been used then, my credit score would have gone down.

So be- aware - stay vigilant.  Check your scores regularly and get the annual free report so if there is somethign on there that could ruin your scores you will know it, and if there are errors, you can get those taken off. 

Remember without the right ### on the FICO, you can't qualify for a mortgage loan.