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In today's increasingly automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number. All the years you've been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations: your credit score.

All three of the major credit reporting agencies (
Equifax, Experian, and TransUnion) use a slightly different system to arrive at a score. For mortgage financing we will use the middle of the three scores.  The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:

*Credit History - How long have you had credit?
*Payment History - Do you pay your bills on time?
*Credit Card Balances - How much do you owe and on how many accounts?
*Credit Inquiries - How many times have you had your credit checked?

Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number.  Scores range from 300 to 850, with higher being better. Typical home buyers find their scores falling between 600 and 800.  Higher scores indicate you are a better credit risk, and thus may qualify you for a better mortgage rate.

What can you do about your credit score?  Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes.  However, in certain circumstances your credit score may be increased quickly and significantly by removing inaccuracies from your credit report (such as documenting a recent late was actually paid on time) or paying down your credit card balances.  This is done through a process known as rapid rescoring.  The most important step in achieving a high credit score is to develop healthy credit habits: paying your bills on time, keeping low balances on your credit cards, and not obtaining short term financing.

In some cases, it makes sense to enroll in a credit repair program.  This process takes about six months and costs $895 for an individual and $1495 for a couple.  This may sound like a high price to pay, but considering that a lower interest rate could save you tens of thousands of dollars over the life of your loan, it is well worth it.  We do not recommend that borrowers attempt to fix severely damaged credit on their own.  What you may think will help your credit may end up doing more damage in the end.  You turn to a credit expert for the same reason you turn to any other expert - for their experience, efficiency, and results!

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