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Fico Scores, Credit Repair and the Real Scoop

Copyright 2006 Keith John Gill

It?s sometimes surreal to think that in the institutional Lending industry that most people are reduced to the 3 digit number known as the FICO score. As cold as it might seem at times it is ?objectively? the most fair and quickest way to determine the acceptable risk level of a borrower.

I?m an ?insider? that looks at credit reports all day. I?m here to tell you what is wise credit use, what?s B.S., how accurate a FICO score is and the best ways to optimize your credit so you may get financed for the Home of your dreams

FICO score and credit reports play a big part in the home loan application process, but this does not mean that potential homebuyers with a less-than-stellar credit history cannot get a mortgage loan. Many mortgage lenders work with bad credit mortgage applicants. These bad credit applicants could oftentimes receive higher mortgage interest rates.

Mortgage lenders use credit reports to determine the amount of the mortgage loan and mortgage rate, as well as other mortgage conditions and terms that they will offer the homebuyer. Usually, the better the credit, the better the terms mortgage lenders would be able to offer. Mortgage refinancing options are also dependent on the homebuyer?s credit reports. There are three major credit reporting agencies: Experian, Equifax, and Trans Union. Homebuyers may obtain one free credit report from each of these agencies every 12 months. Mortgage lenders typically look at a merged report from all three agencies.

The credit reports list the homebuyer?s history of accounts including credit card, student loans, and real estate loans. They also list auto financing plans, child support, charge offs, and other financial accounts. The reports supply information on each account, such as when the account was opened, what the current balance is, what the highest balance was, and when each past-due payment was made. If the account was closed, the reports will give the date it was closed and supply a reason if necessary.

The reports also contain public records such as bankruptcy and foreclosure. Bankruptcy information stays on the records for 10 years. Account information stays on the records for seven years after the account is paid off. The information in these reports is not completely current or it is one to three months behind the date the reports are created.

Based on this information, the potential homebuyer is assigned a credit score ranging from 300 to 850. This credit score is often known as a FICO score, named after the Fair Isaac Company that came up with this method. A lot of factors can affect the score. Late payments on the accounts and unpaid debts lead to a record of bad credit and lower the credit score.

A credit score of 720 or above is likely to yield the best interest rates. Typically, the minimum score for mortgage lenders to approve a 30-year fixed-rate mortgage with a reasonable interest rate is 620. Potential homebuyers with bad credit will probably have scores lower than this. These homebuyers can try to repair their credit and increase their credit score.

To repair credit, experts recommend that homebuyers submit all payments on time and pay off all overdue debt. Of course this is common sense. Some of the not so common sense approaches are the following.

1. Keep all revolving debt (credit cards) below 50% (or below 33% is even better) of the Total credit limit; spread it out across different accounts if you must.

2. Never Close out accounts after they are paid off just don?t use them (this has to do with utilization ratios of available credit) If you must close accounts always close the newest accounts first and leave the older well established accounts open

3. Stay away from lending sources that are considered ?Finance? companies. It seems that these types of loan sources can actually hurt credit scores in some instances.

4. Dispute inaccurate info on all 3 of your credit reports as well as with the actual creditors?Preferably send a dispute to the creditor first, wait a week and send a dispute for the same account to the Credit reporting agency reporting the inaccurate info.

5. Do not constantly take actions that have your credit pulled like applying for too much credit. Too many credit inquires severely impact your FICO score

If you are going to play the loan and credit game and plug yourself into the system of ?institutional lending? you have to play by the rules of the game that are established by the lending and credit institutions. As ugly as that may seem sometimes this is the world we live in. The good news is there are ways for anyone with any credit rating or FICO score to get financed for what ever they want. Albeit sometimes it requires some credit repair and fico score recovery.

The process to recovery is a long one, but it is worth going through in order for homebuyers to obtain a good home mortgage loan. For homeowners who cannot wait out the long process of credit repair, getting a mortgage loan from a lender that deals with bad credit mortgages could be a good option?.I just happen to know Many sources that cater to just that need?Feel free to contact me with your questions and concerns I am here to serve YOU

Keith Gill is an Experienced Lending and credit specialist serving his customers with the highest amount of Customer Service

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