BY JOE BRISBEN
After I pay my bills, I exhale a deep breath, put my feet up,and relax, content in knowing that I have been financially responsible foranother month. In fact, I just finished the payments. And, as I watch my belovedSt. Louis Cardinals play baseball in prayerful meditation, I shall write thiscolumn.
One of the actions I have taken recently to reduce my financial obligationsis to take advantage of lower mortgage rates and to refinance my home.
However, like everything else in the world, TNSTAAFL, which stands for “There’sno such thing as a free lunch.” To take advantage of lower rates, homeownersmust leap the FICO hurdle.
To qualify for loans at the lowest possible rates, borrowers have to qualifyfinancially. They are scored by lenders using a computerized model for evaluatingcredit risk that was developed by Fair, Isaac & Co., so it is known asthe FICO score.
Mortgage people want to lend you money, but they also want to be repaid ontime. They gauge the risk of making loans on a number of factors, not the leastof which is the potential for missing payments.
The FICO scoring system compares a borrower’s credit to those of similarborrowers all across the United States. Lenders are looking for integrity,attitude, and discipline as well as a borrower’s capability to pay billson time.
Experian, Equifax, and Transunion are the three companies that gather creditinformation. They operate independently and use different methods of gatheringinformation, so their reports on the same borrower may differ.
In addition, they issue different types of reports, one for consumers and onefor merchants. A consumer report is what you would receive if you ordered areport about yourself. The merchant’s report is more complete and containsall the FICO scores.
These scores are just one of several criteria lenders use in evaluating theability of a borrower to repay a loan. The scores range from 0 to 1000. Thehigher the score the better the credit risk.
Scores of 700 or more rate an A and 640 to 700 a B. Anyone with a score below579 fails.
Other than that, the most important factors for mortgage lenders are mortgagehistory, credit history, liens, judgments, length of credit history, proportionof debt to credit balances, and the amount of available credit.
If you want to improve your FICO score, you can do it by paying your bills—especiallymortgage payments—on time. Late payments cost you points.
To obtain the best scores, you should accumulate at least 36 months of timelypayment history. As a general rule, a borrower will have an excellent creditscore with four major accounts with $1,500 credit limits or higher and 36 monthsof spotless payment history and maintaining balances that are at or below 60percent of available credit limits.
However, even if you pay your bills on time, you could have a lower creditscore. Too many accounts with credit balances will reduce your score. Too manyinquiries diminish the score. Too many monthly obligations hurt your score.
The real negatives are late mortgage payments, collection history, charge-offs,repossessions, and bankruptcy. While a borrower can deal with these factors,most lenders will refuse a conventional loan to someone with a history of aforeclosure on his or her report.
It’s a good idea to review your FICO score periodically. Someone mayhave reported erroneous information. If you find it, you can write a letterto the reporting agency and request a correction.
For more information on FICO scoring and obtaining your FICO scores, checkout these websites: www.creditline.com and www.creditreporting.com.
P.S. The bills are in the mail, and in the fifth inning, the Cardinals areleading the Padres 3 to 1. Life is good.