It's always a good timeÂ to set new goals and every consumer should consider making time to improve their FICO credit score.
Not only can improving your FICO credit score improve your chances of obtaining a mortgage, but it could improve your auto insurance premiums and, possibly, make you a more attractive employment candidate.
FICO scores range from 300 to 850.Â Mortgage applicants get the best mortgage rates and terms when theirÂ FICO scores are 720 or higher.
For borrowers of all FICO scores, the best way to improve your credit rating is to understand the factors that make up your FICO score, and to take specific actions that canÂ make a positive impact on your score.Click to see today's rates (Oct 23rd, 2017)
The FICO credit score takes into account a combination of all of the information found in your credit report.
Your FICO score is made up of the following:
To find out what is impacting your FICO score you will want to review your credit reports.
You can obtain a free copy of your credit report from each of the three main credit reporting agencies -- Equifax, TransUnion, and Experian -- atÂ www.annualcreditreport.com.
It is important that you order and review the reports from each of theÂ bureaus because different reports may contain different sets of information or errors which could affect your FICO credit score negatively.Â For example, a settled medical collection may appear on your Experian report, but may be shown as "in collection" with TransUnion and Experian.
FICO scores are generated based on a snapshot of the information on your credit report as of the particular moment that the report is pulled. Correcting errors is crucial, therefore, toÂ ensure the highest possible FICO score.
"Payment History" makes the largest impact on your FICO score at 35% of your overall score. It is vital, therefore, that you keepÂ current on all of the accounts reporting to your credit report.
When reviewing your credit report, should you find anyÂ accounts that are past due, catch them up as soon as possible and pay at least the minimum payment required by the due date.
With 12 months of clean pay history and no late payments, you can dramatically improve your FICO score. And, with 24 months of clean pay history, the improvements can beÂ even bigger.
FICO considers theÂ number of accounts paid as agreed as compared to the number of accounts with late payments, along with the severity of thoseÂ delinquencies.
90-day late payments makeÂ a more negative impact than 60-day late payments; and 60-day late paymentsÂ make a mortgage negative impact than 30-day late payments.
Should youÂ detect any errors on your credit report, you will want to request aÂ correction as quickly as possible.
In order to make a correction, use the information on your report to contact the credit bureaus, and also the creditors which provided the erroneous data to the bureaus.
By law, the credit bureaus are usually required to investigate the item in question within 30 days, unless they consider your dispute to be frivolous. You may need to submit documentation that supports your position. Send copies only -- never originals.
Then, within 45 days, the credit bureaus will notify you with the results of your investigation. Getting even one late payment removed from your credit report can improve your FICO score dramatically.
Sometimes, a creditor may be willing to "help you out".
In cases where you make a relatively small slip-up, with a creditor you've never been late with, you can sometimes get a late-payment "waived". It's always a good idea to make a phone call and to ask for a little grace.
There are many examples ofÂ creditors removing a late payment from your credit report if there's a legitimate story behind what happened, and if you can explain what steps you've taken to avoid a repeat occurrence.
This works best if you catch the delinquency early and bring the account current right away.
Old collection items, credit card charge-offs, and judgments and liens can hurt your FICO score, too. If you've got any of these on your credit report, it's time to contact your creditors and collection agencies and to settle up one-at-a-time.
First, settle the accounts which went delinquent within the last 24 months because these more recent accounts create the biggest drag on your FICO credit scores. Then, in looking at your collection items over 24 months old, proceed with care. This is because FICO puts the most weight on your recent credit history, which encompasses the last two years only.
This is why your FICO score may drop when you pay off aÂ collection account over 24 months old.Â Once the account is paid, it becomes "recent", causingÂ damage to your score.
In many cases, you can negotiate with your creditors to remove a trade line completelyÂ in exchange for settling an account for its full balance. You need to call your credits first, however, to find out.
Another way to improve your FICO is to improve your "amounts owed", or debt utilization ratio. Debt utilization makes up 30% of your FICO credit score.
Debt utilization is a measure of how much you money you owe to creditors as compared to how much credit is available to you.
The FICO scoring model takes into account the utilization of each individual credit account; and the utilization of all of your credit accounts combined.
For example, if you have five credit cards, each with a $2,000 limit, you have a total $10,000 available credit over all five accounts.Â If you carry a $1,000 balance on one of the five accounts, you would have a 50% utilization on one card and a 10% utilization over allÂ of your credit.
In general, debt utilization of 30% of less is good for FICO scores. Utilization over 30% is often bad.
The best way to improve your debt utilization ratio is to pay off debt. Pay revolving accounts down first, followed by your installment debt.
Credit bureaus try to predict a mortgage applicantâ€™s future success as a homeowner.
They issue a number between 300 and 850 based on how â€śgoodâ€ť the consumer has been with credit. This is known as a credit score.
A high score indicates the consumer has a good chance of repaying future debts.
But the system does not always work so well.
One missed payment can drop a consumerâ€™s credit score by 100 points or more. Because of one missed credit card payment of $15, for instance, the consumer might receive a higher mortgage rate and pay thousands more in interest over the life of a home loan.
Trended credit data looks to combat this situation.
It is a two-year analysis of a consumerâ€™s credit profile based on trends, not a one-time event.
Lenders will be able to determine a borrowerâ€™s credit behavior and use this better information for an approval decision. The new credit reports will show the lender the following tendencies.
The trended data will be included on credit cards as well as home equity lines of credit (HELOCs), student loans, car loans and mortgages.
The credit scores used in most lending decisions currently do not distinguish between folks who carry balances on credit cards and those who pay them off each month.
Trended data will help lenders see if a borrower is reducing their overall debt over time -- a very good indicator of future mortgage-borrowing success.
Trended data provides a fuller picture of a consumerâ€™s credit trends, supplementing the traditional moment-in-time credit snapshot with a more dynamic picture that includes managing revolving accounts.
Mortgage rates are FICO score-dependent. In general, the higher your credit score, the lower rate for which you'll be eligible. This is among the reasons why it's good to improve your FICO score to its highest level possible.
See for what mortgage rate you'd qualify today. Rates are available at no cost, with no social security number required to get started, and with no obligation to proceed whatsoever.Click to see today's rates (Oct 23rd, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)