Importance of Good Credit Scores

Your credit scores are very important. Banks will decide whether to lend you money and what interest rates you are eligible for based on your credit scores. Your credit scores may also impact the cost of your monthly insurance premium. Lenders view past credit performance as a strong indicator of a borrower's attitude toward credit obligations and a good predictor of a borrower's future actions. Borrowers who have made payments on previous and current obligations in a timely manner represent a reduced risk.

The credit score that most mortgage lenders look at is your FICO credit score. It is a three digit number between 300 and 850 which helps lenders analyze your credit risk. The higher your score, the more favorably lenders look upon you as a credit risk.

Although the exact method of calculating your credit score is proprietary information, credit scores are generally based on your payment history, total amount of outstanding debt, length of credit history, types of credit obligations, amount of new credit and negative public records such as bankruptcies, if any.

There are three major credit bureaus: TransUnion, Equifax and Experian. Most lenders require a residential merged credit report that blends information from all three credit bureaus and sets forth your credit score from each bureau. Lenders will not average your credit scores or take the highest credit score but typically, will use your middle credit score in making their credit decision.

To obtain free copies of your credit reports from each bureau go to www.annualcreditreport.com. The three credit bureaus do not always have the same information about you in their credit file. For instance, your TransUnion credit file could indicate that you have an outstanding collection account but this collection account may not be reflected in either your Experian or Equifax credit files. It is, therefore, important that you examine each report individually. Be sure to dispute all incorrect information with each credit bureau separately.

The free credit reports will only show the information in your credit file but not your credit score. If you want to know your credit scores before submitting a loan application, you can contact each bureau directly or go to www.myfico.com where you can obtain your credit scores and credit reports from Equifax and TransUnion but not Experian.

TransUnion www.transunion.com (800) 888-4213
Equifax www.equifax.com (866) 640-2273
Experian www.experian.com (888) 397-3742

You should review your credit information as early as possible because if there is incorrect information it may take more than 30 days for the information to be corrected and your credit file to be updated.