Your FICO Credit score is used by mortgage companies to determine how much of a risk you are for a home mortgage refinance loan. The lower your score, the more you will pay when mortgage refinancing. There are ways to improve your credit before applying and save money on your home mortgage refinance loan. Here are tips to help you polish your FICO score and qualify for a better mortgage refinancing interest rate.
FICO stands for “Fair Isaac Corporation,” named for the company that calculates your score. Fair Isaac evaluates the contents of your credit reports and assigns a numerical value to your credit worthiness. Because there are three companies that maintain records, you will have three FICO scores, one for each credit agency. Before you consider mortgage refinancing it is important to request credit reports from each credit reporting agency and carefully review your records for errors.
Any adverse information found in your credit reports will damage your FICO scores. Other factors that affect your FICO score include the length of time you have been using credit, the amount of available credit vs. your debts, negative credit information in your file, collections, any write-offs or bad debt. If you find mistakes in your credit history it is important to dispute the error and allow enough time for the correction to raise your FICO score before applying for a home mortgage refinance loan.
How to Improve Your FICO Score before Mortgage Refinancing
Improving your credit score takes time, there is no quick fix; however, there are steps you can take to raise your score. First, make sure you are paying all of your bills on time as 35% of your FICO score is based on your payment history. Fair Isaac also bases 30% of your FICO score on the amount of your debts and your available credit limit. The remaining factors include 15% based on the length of your credit history, 10% on the amount of recent inquires, and 10% on the type of credit accounts you use.
The items you can control prior to mortgage refinancing include paying your bills on time, maintaining low balances on your credit cards, and paying off negative information found in your credit reports. The more time you have to devote to improving your credit score, the more you can boost your FICO Score. If you are a homeowner with poor credit you want to devote at least six months to improving your FICO score before applying for a home mortgage refinance loan. You can learn more about your credit and how it affects mortgage refinancing by registering for a free mortgage tutorial.
By: Louie Latour
Posts Tagged ‘Numerical Value’
Home Mortgage Refinance Loan: Your FICO Score & Mortgage Refinancing
March 4th, 2010Refinance Scams – Shady Loan Officer Tactics – Part 1
November 25th, 2009
Refinancing scams are big news lately, and for good reason. If you are considering refinancing your home, I urge you to read this article in its entirety. It might save you tens of thousands of dollars in the long run.
I used to work for a major, US direct lender who specialized in home-loan refinancing. This corporation taught its loan representatives how to manipulate customers into agreeing to loans that were not in the borrower’s best interest. Although we were taught many methods of psychologically coercing customers into signing loan documents, this article will only discuss one of those methods.
Before I discuss this tactic, you should realize that when a lender evaluates your loan application, they are primarily looking at three things:
1) FICO Score
2) Mortgage-related late payments
3) Bankruptcies
Credit-card payment history, car-payment history, student loans, collections, charge-offs, and pretty much any type of credit problem that is not directly related to a mortgage is irrelevant to getting your loan approved. Why are these credit issues irrelevant? Because that is what the FICO score represents. Your FICO score is a numerical value that takes into consideration all of these factors and lumps them into a number that will range from 500 to 800+.
Mortgage-related late payments will typically increase your interest rate. Bankruptcies will also increase your interest rate or (depending upon the lender) make you “un-lendable”.
Here is the tactic that you should be aware of:
Your loan officer may want to talk with you about your credit history. He or she will ask you specific questions regarding credit-card late payments or otherwise non-mortgage related issues on your credit report. Your loan officer will ask that you explain yourself and provide a valid reason why you were late on those payments.
How is this manipulative?
For starters, those credit issues are irrelevant to your loan approval. Your loan officer should not be discussing them. By asking about your credit history and requesting an explanation, your loan officer is accomplishing three things:
1) Making you feel insecure about your credit history so that you will be less likely to request a quote from another lender
2) Forcing you to “open up” about your personal life, which will help develop a stronger relationship between the two of you
3) Make you feel more appreciative of the loan that your loan officer offers you
The more battered your credit history, the more ammunition a ruthless loan officer will have to use against you and try to manipulate you into accepting a loan that is not in your best interest.
Remember, the majority of loan officers know exactly what type of loan you are approved for the moment they pull your credit. There is absolutely no need for them to delve into your past.
If you experience this type of tactic from your loan officer, I strongly suggest you find a more reputable company to work with.
By: Christian Rios