As a first-time home buyer, you’ll want to have the strongest possible credit score when you apply for a mortgage. The higher your score, the better your mortgage offers, and the less interest you’ll pay! But what, exactly, is a “good” credit score?
FICO is the predominant scoring model used by credit agencies and lenders. Possible scores range from a low of 350 to a high of 850. According to Equifax, here’s how most credit score ranges are viewed today:
- 350 to 579: very poor
- 580 to 669: fair
- 670 to 739: good
- 740 to 799: very good
- 800 to 850: exceptional
Now comes the fun part. There are three major credit bureaus: Equifax, TransUnion and Experian. Your credit history, and credit score, may be different with each one! This is because not all creditors report to all three bureaus. So, while you may look great to Experian, you could have a late payment showing up on TransUnion. Lenders usually compensate for this by averaging your scores from all three bureaus.
Fortunately, you can pull your credit history for free, from all three bureaus, at annualcreditreport.com. While this doesn’t provide your FICO score, you’ll get an itemization of your payment history with every creditor. For your FICO scores, you’ll need to reach into your wallet and purchase them at MyFico.com. (You can buy your scores as a one-time transaction; you are not obligated to buy a credit protection plan or any other service.)
If you have some blemishes on your credit history, don’t panic. Here are ways to improve your credit score:
If you see something you don’t agree with on your credit report, file a dispute with the reporting bureau. It will be up to the creditor or collection agency to validate the information with the bureau. If they don’t respond to the bureau’s inquiry, the item will be removed. Even if they do respond, and the item doesn’t get removed, you can go to the next steps.
Negotiate the adverse report with the creditor. Some companies are willing to remove a late payment report as a “one time courtesy.” Be nice to the person you have on the phone!
Negotiate collection accounts. This is extremely tricky, because paying a collection account can actually hurt your score – like stirring up a zombie. The best way to handle a collection account, is to negotiate payoff in return for complete removal of the account from the credit bureaus. See these tips from NOLO and TheBalance.
If you have judgments, bankruptcies or liens on your credit report, only time itself will make them eventually fall off the reporting. But it’s well worth resolving any outstanding, adverse actions. Learn more about these items at Illinois Legal Aid Online.
If you have nothing nasty on your credit report, improving your score is fairly simple. You need:
- A history of consistent, on-time payments
- A low credit utilization ratio – meaning you don’t use more than 30% of your available credit
- A low level of overall indebtedness
- At least a couple of “seasoned” accounts – in other words, some depth to your credit history
- Infrequent credit inquires – don’t apply for credit you don’t need!
You can see how different aspects of your credit profile affect your score at MyFico. Your mortgage lender may also have advice about what you should tackle first, in order to qualify for a mortgage! We work with excellent Chicagoland mortgage lenders, and we’ll be happy to refer you to them!
StartingPoint Realty – expert guidance for first-time home buyers!
StartingPoint Realty serves first-time home buyers throughout Chicago and the Northwest suburbs. We provide complete guidance during the entire home buying process! Attend a free home buying seminar to begin your path to home ownership!
Always feel welcome to contact us for help with your Chicago home buying questions!
Ryan Gable Broker/CEO Starting Point Realty
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