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How do I find my credit history?

Before applying for your loan, get a copy of your credit report. You can obtain a copy directly from a credit bureau or a company that will get you one from all the major credit bureaus. You can find these companies in the phone book under "Credit Reporting Agencies," or on the Internet by searching for the same key words.

You are now entitled to one free credit report from each of the three major credit reporting agencies every year. You can get them online at annualcreditreport.com. Before ordering, read the information from the Federal Trade Commission at ftc.gov/ bcp/ edu/pubs/consumer/credit/cre34.shtm.

If you need to obtain more than your one free report from each agency in a year, the cost for additional reports should be under $40, and even less if you go directly to the credit bureaus. If you have been refused credit based on your credit report, the credit bureau will give you a free report even if you have already gotten your free annual report. You will need the letter showing that you were refused credit. It is wise to get a report from all three bureaus because when you pull your credit history, each report may not contain the same information.

The three major credit reporting companies are Equifax, Experian, and TransUnion.

Equifax

P.O. Box 740241

Atlanta, GA 30374

800-685-1111

equifax.com

Experian

P.O. Box 2104

Allen, TX 75013

888-397-3742

experian.com

TransUnion

P.O. Box 105281

Atlanta, GA 30348

877-322-8228

transunion.com

Examine the report for errors. Perhaps the credit bureau mistakenly put information about someone else on your report. Report any errors to the credit bureau. Get something in writing saying that the incorrect information is being removed, and save it. You can at least show the letter to your prospective lender. You may find that it is not easy to get the mistake removed. It may be temporarily removed and then show up again later. Having something in writing will make it easier to get the error removed a second (or third) time, if necessary. After making sure the information from each credit agency is accurate, you can get a good idea of your position as a borrower by checking one figure on each report — your credit score.

What is my credit score?

The importance of the individual underwriter's examination of credit has greatly diminished in recent years. This is due to computer underwriting and the credit score. Your credit score is a number determined by a complex mathematical formula. The Fair Isaac Corporation (FICO) invented the credit score and is the dominant company supplier of the formula. Your credit score is commonly referred to as your FICO score.

Not all lenders use FICO scores, and some do not use them for all the loans that they offer. However, the number of lenders using FICO scores is increasing. It will not be long before almost all lenders will rely on them to some degree in making decisions of approval, rates, and fees.

How do lenders use my credit score?

Lenders use your credit score both to decide whether to accept or reject a mortgage application and to set interest rates and fees. Acceptable scores range from 500 to 850. The interest rate difference can be substantial — over 3% — from a low score to a high score. On a $150,000 loan, for example, your monthly payment could be over $300 per month higher if you scored 500 rather than if you scored 850. The average score ranges between 620 and 650. Lenders advertise interest rates based on the lowest rate they offer.

This means that they are assuming that you are the ideal borrower. Do not assume that because a lender advertises a low rate, and also advertises that it will accept borrowers with bad credit, that the low rate applies to the borrower with bad credit.

Unfortunately, an exceptionally high credit score will not get you a rate lower than the bank's best rate. The score needed for the best rate is generally between 720 and 750, depending on the lender. Any score above that will not lower the rate further. However, a great credit score of 800 or above could minimize a problem, such as insufficient income, and still allow you to get a loan that someone in the same position with a lower credit score could not get.

A benefit of learning your credit score is that you can determine in advance the approximate interest rate you should pay for your loan. You can even take steps to improve your score — if you plan far enough in advance.

 
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