Credit

What Is A FICO Score?

“FICO®” scores are a type of credit score developed by Fair Isaac Corporation.  FICO® scores use credit bureau information to obtain a score which indicates how likely someone is to make their loan payments on time.  Millions of consumers’ credit bureau records were used to develop score cards, and all of the consumer data – not just negative information – was included to develop the system.  FICO® scores range from approximately 350-850.  The higher the score, the lower the probability of default on the loan.

How Can I Improve My Credit Score?

Because each borrower’s credit score is a reflection of his or her unique credit profile, it is not possible to quantify in advance exactly how each item in your credit history impacts your credit score. No one can tell you, for example, how much your credit score will be affected if you pay off a delinquent account or cancel a credit card. We know, however; that there are things you can do to improve your credit profile. Some of these factors include:

Making Timely Payments. Making you payments on time is the best way to increase your score. Delinquencies, foreclosures, bankruptcies and judgments will decrease your score.

The Number of Trade Lines. The number of credit cards, lines of credit and other types of credit (“trade lines”) you have available will affect your score. If you have a lot of trade lines, this may decrease your score because of the risk that you might not be able to pay off all of your accounts, and this may affect your ability to pay off your mortgage loan. You may wish to consider canceling credit cards you do not use regularly or choosing 2-4 cards to use and canceling the rest. If you close or cancel an account voluntarily, it will not have a negative effect on your credit score. You may wish to reconsider accepting “pre-approved” offers of credit cards, or if you accept an offer, perhaps you should cancel another credit card. On the other hand, if you have no trade lines, this will likely decrease your score. Lenders generally want to see that you have some available credit and that you can handle your credit wisely.

How You Use Credit. The amount outstanding on each of your credit cards will also affect your score. In general, the lower the amount outstanding, the more likely it is that your score will be higher.

Do Not Apply For Credit You Do Not Need. Whenever you apply for credit, the creditor will obtain a credit report from one or more of the three credit bureaus. Each credit inquiry will stay on your record and will affect your credit score. Even if you are turned down for the credit or change your mind and withdraw your application, your credit score will be affected. This is because each inquiry suggests that you are increasing the amount of credit available to you. Before you give your Social Security number to someone, make certain you know how they are going to use it. A Social Security number is almost always required to run a credit report. But don’t let the fear of inquires stop you from shopping for the best deal when you need auto or home financing. Recently, the credit bureaus have recognized that borrowers may apply for credit at more than one place for the same transaction. Generally, the credit scoring companies will consider all auto or mortgage loan inquires received within 14 day period as one inquiry so the additional inquires will not affect your credit score.

We encourage you to obtain a copy of your credit report and to review it for accuracy before submitting your loan application. If you find any errors, correcting them prior to submitting your loan application may result in a better likelihood your application will be approved and also that the time for approval will be lessened. And remember when you order a copy of your credit report to make sure it’s accurate, this will NOT show up as an inquiry on your record.