Ironing Out Bad Credit

Unless you pay cash for your house-an unlikely situation except for those on the Forbes' list of 400 Richest Americans-you're going to need a mortgage. And to get a mortgage you're going to need a decent credit history. So, before applying for that loan, you'll want to do everything possible to get a "yes." And that involves knowing what's inside your credit report.

Perhaps you think you have an unblemished credit record-and maybe you do-but you might be surprised. Even the tiniest infraction can mess things up. Or, perhaps deep down you know you've been a little sloppy in this area-fallen behind on credit card payments, shifting balances from one card to another, or you missed a car loan payment.

Know the Score

Every parent knows their child's soccer team score blindfolded. Grandparents automatically recite grandchildrens' SAT scores. You probably even know your bowling league score for the past 12 months. But it's rare that one knows their FICO score.

The FICO score is a good place to begin your journey of cleaning up a bad credit history.

FICO stands for Fair, Issac & Co. They're the folks who created the mathematical formula used to calculate what's now commonly called the FICO score. This three-digit number, which appears on your credit report, is a big, big determinant in whether or not you get a mortgage or any other type of loan. FICO helps banks, credit card issuers, auto loan companies and other lenders decide if you're a good credit risk. It can also make a difference in the interest rate you're offered. Obviously, the higher your score, the more likely you'll land a mortgage and one with a low rate.

Your FICO Score---------------Interest Rate
720 - 850 ----------------------- 6.089%
700 - 719 ----------------------- 6.214%
675 - 699 ----------------------- 6.751%
620 - 674 ----------------------- 7.901%
560 - 619 ----------------------- 8.531%
500 - 559 ----------------------- 9.289%

Among the things that affect your FICO score:

  • Delinquent payments
  • Opening too many accounts during a 12-month period
  • Carrying the maximum balance (or nearly so) on revolving credit cards
  • Tax liens, judgments and bankruptcies
  • Too many credit inquiries

Get your FICO Score and your Credit Report

Until recently, one's FICO score was a deep, dark secret, known only to the credit bureaus and lenders. Starting a couple of years ago, however, FICO scores became public-in fact you can get yours (along with your credit report) from the three major credit bureaus or directly from FICO.

The three credit bureaus charge a modest fee, typically $9-$12, for sending out reports. Spend the money and get copies from all three-each may have different data. Order your report three to six months before applying for a mortgage-you want plenty of time to correct any errors and avoid being turned down for mortgage. Being turned down also goes into your report-it's a Catch-22.

The three major credit bureaus are:

  • Equifax: 800-685-1111
  • Experian: 888-397-3742
  • TransUnion: 800-888-4213

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