Your FICO score is the three digit number that is the result of reports of your credit history. FICO is an acronym for the Fair Isaac Corporation, the company which developed the system for calculating the score based on your borrowing activity. Increasingly, this has become a very important number for anyone not only buying a home, but renting one as well. The FICO scores of prospective job applicants are also checked by some employers.
When applying for a mortgage, the FICO score determines what types of loans and rates you are eligible for. If you have a low score (generally under 620) you might still get a mortgage, but it would be at a higher rate, and probably come with some conditions to be met. A higher score would increase the availability of types of loans your bank or mortgage broker could offer you.
Lenders and mortgage brokers often will run your credit to generate a report on the spot. This is good for you, because if there are any problems with your credit, you can see what they are and take steps to correct them. Do not be afraid to let a reliable mortgage broker or lender do this, even if you are shopping for a mortgage with several lenders. While it is true that a lot of credit inquiries will result in a lower score, the system allows for a pattern of “shopping” for certain big ticket items over several weeks. The credit bureaus know that you will compare prices on cars, mortgages, etc. over a limited time, and that those companies will generate inquiries. It is ok to have multiple inquiries of one type during this period. Just don’t shop for a car and a mortgage at the same time!
Your mortgage lender or broker will run a credit report at the time of your application or pre approval. The mortgage lender will run another one just before giving you the materials to close your purchase of a home. If you have a drop in your score at that time, they may refuse to give you a mortgage, and the purchase of the home will be in jeopardy.
I repeat, DO NOT buy a car and a house at the same time. Wait until you have closed the purchase of the house before you shop for the car or open new credit card accounts!
Landlords often want to see a credit report, as well as the score. They want to see that you have a history of paying your bills on time. They also want to see if you have any obligations or problems that might make you a bad tenant or a risk. Some property management firms may ask for your social security number in order to generate their own reports. This is reasonable, because they are obligated to the building’s owners to verify that your information is reliable and current.
If you submit a printed credit report to a prospective landlord, be sure to block out your social security number to prevent identity theft should the report fall into the wrong hands. Usually they do not want pages and pages of cancelled accounts – they want the summary portion of the report, with explanations of things like collections and charge offs. If a prospective landlord is scrutinizing you this closely, it also helps to provide verifiable references for employment and character. If you have always paid for everything up front and with cash, you will need to find other means to prove to your prospective landlord that you will be a good tenant. They may ask for references from companies you do business with, to verify that you pay your bills on time.
You are entitled to one free credit report each year from each of the three major credit bureaus. These will not include your score – those usually can be purchased with the report for a nominal fee. It is a good idea to check your credit annually, to see what inquiries have been made, and if there are any errors you need to correct. IF you wait to find out, you may find that you do not get the mortgage or the rental that you need.
The three major credit bureaus operate a site where you can obtain the free credit reports without being solicited by companies wanting to offer you other financial services. You can visit www.annualcreditreport.com to request your credit report online, or sent to you in the mail.