FICO Score Improvement

As the credit market tightens it becomes all the more important to have a good FICO Score when applying for a home loan. In today’s market lenders still have plenty of money to lend but are cutting off credit to marginal and to sub prime borrowers.

In order to insure that you will not be denied home purchasing credit when you need it you must takes steps to maintain a high FICO Score. Here are a few ways to make sure that you are a prime borrower.

1.) Pay Down Loan Balances

Most lenders look at your FICO score when reviewing your loan application. FICO stands for Fair Isaac Corp., which calculates the rating, and the score ranges from 300 to 850. According to Fair Isaac, the median FICO score is 723. Borrowers with a score of 700 or more generally are considered prime.

Since 30 percent of your FICO rating is made up of how big your balances are compared to the credit available to you one of the fastest ways to improve your score is to pay down your debts, says Craig Watts, public affairs manager for Fair Isaac.

Credit experts recommend that you stay below 50 percent. The lower your ratio the better your score will be. So if you have credit lines of, say $25,000, but sure that your credit balance is below $12,500 at any one time.

2.) Pay All of Your Bills On Time

Your payment history, or how often you pay your bills on time is equally important, making up another 30 percent of your FICO score. A late payment stays on your credit report for as long as seven years. Its impact on your score, however, gradually fades over time - as long as you get current on your bills.

Your score will gradually move up after as few as six months of on-time payments, according to Evan Hendricks, author of “Credit Scores and Credit Reports.” And you’ll see a significant leap in your score after one year of timely payments.

3.) Resist New Credit Offers

Refuse new credit offers even when tempting special deals are offered. If you’re about to refinance or take out a mortgage, don’t open any new lines of credit. The number of times you apply for new credit, called inquiries, accounts for 10 percent of your FICO score. And the fewer inquires you have, the better.

Otherwise, “It could look like you’re going on a credit spree,” says Hendricks.

4.) Fix Credit Report Errors

Check your credit report for errors at least a few months in advance of applying for a mortgage. Errors are much more common then you might think. A 2004 study from the U.S. Public Interest Research Group found that up to 79 percent of credit reports may contain an error, some serious enough to result in the denial of credit.

Under federal law, you’re entitled to receive a free copy of your credit report from each of the three main credit bureaus - Equifax, Experian and TransUnion - every 12 months. To get your copies, go to AnnualCreditReport or call 1- 877-322-8228.

You’re also entitled to see a copy of the credit report your loan officer or mortgage broker pulls. If you do find a discrepancy, credit bureaus provide instructions on the credit report on how to contest an error. Filing a dispute by phone or online is fine for simple mistakes, such as a misspelled name.

However, for more serious errors it’s better to have a paper trail of your complaint. Send a certified letter with a return receipt requested to the credit bureau, as well as the creditor. The bureau must investigate your claim within 45 day of receiving it.

5.) Find Alternative Sources of Loans

If you are in a hurry consider a loan backed by the Federal Housing Administration. These loans are approved based on your overall credit history, not just your credit score. They will also carry competitive interest rates, today ranging from 6.5 percent to 7 percent, and require only a 3 percent down payment.

Even if you have no plans at the moment to shop around for a new home and for an acceptable mortgage you should work to improve your credit score. A good FICO Score can assist you in getting better rates on your credit cards and can even improve your employment prospects if you are in the job market.

Since it may take some time for your FICO Score to improve as you implement the steps outlined above you should start now rather than wait until you do want a new mortgage.

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