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FIND OUT YOUR CREDIT SCORES

Much has been made about credit scores and how important they are to you. A credit score is a number that is calculated to predict the likelihood of default on a loan. The higher the credit score, the better the credit.

Credit scores can range from as low as 300 to as high as 850. I've never witnessed a “perfecf credit score, which leads me to believe it's a theoretical number that can never be reached. The highest score that I recall seeing during my years as a loan officer was around 820.

Credit scoring has been around for years, but it became important to the mortgage lending industry in the late 1990s. Each credit repository issues its own credit score, so you should have three scores in all.

Each repository, Equifax, Experian, and Transunion, calculates a credit score on its own using a system devised by Fair Isaac Corporation, commonly called FICO. FICO is a registered trademark.

This special algorithm is licensed to the three bureaus by FICO, which in turn will provide those numbers to the mortgage lender or mortgage broker when asked. It's important to note that these three bureaus have developed their own internal credit-scoring model.

Other third-party businesses also advertise free credit reports with credit scores, but you can't be sure if the score you're getting is the same one those bureaus use when reporting to a mortgage lender.

You might for instance get a credit score of 700 from a website. But this number is different from the ones generated by FICO programs. So, you could be misled into thinking your credit score is 700 when it is actually 600.

On the other hand, you could find out that your credit score obtained directly from the bureau is 600 when in fact your credit score is much higher than that. If you get false information about your score that results in your believing your score is too low, then you might not apply for a mortgage at all.

Credit scores are made up of many different factors, all of which apply to your ability and willingness to repay a debt. But some factors weigh more heavily than others. The key ingredients to a credit score are:

• Payment history

• Available credit

• Length of time you've had credit

• Credit inquiries

• Types of credit

 
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