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About Your Credit Score

It's a good idea to check your credit before shopping for a home. As savvy home buyers and their real estate buyer's agents know, it's smart to check your credit reports before shopping for a home. Fix any errors before applying for a mortgage so you will get the best possible interest rate and terms.

Although you can obtain one free credit report each year from each of the three nationwide credit bureaus, Experian, Equifax and Trans Union, at www.annualcreditreport.com, that source will not provide your all-important FICO score, which most mortgage lenders use to qualify applicants.

Today's mortgage lenders look primarily at your FICO score when qualifying borrowers. In fact, most mortgage underwriters don't even read the applicant's credit reports if the FICO score is at least 680.

FICO scores are based on (1) the length of your credit history (the longer the better), (2) the percentage of available total credit currently being used (try to stay below 50 percent), and (3) your on-time payment history. FICO scores do not consider your income, age, race, nationality, etc., assets, or cash down payment available.

The best place to obtain both your FICO score and all three credit reports is at www.myfico.com. For about $45, you can instantly receive this important information. Then study your credit reports and follow the instructions to correct any errors.

Each credit bureau has 30 days to "verify" any incorrect information. If the creditor doesn't verify the information, such as a 30-day late payment, then it must be removed from your credit report. The result should be an improved FICO score. Ask each credit bureau to send you a corrected copy of your credit report after 30 days.

After you've checked your credit reports, corrected any errors in those reports, and obtained your FICO score, it's still not time yet to shop for a house or condo.

The next step is to get pre-approved in writing by an actual mortgage lender. If your FICO score is below 620, look for a mortgage lender specializing in subprime mortgages.

You may be surprised most major lenders offer these loans. To illustrate, I'm told that Wells Fargo Mortgage is not only the nation's largest home loan lender, but also the nation's largest subprime lender to home buyers with low FICO scores.

Be sure you obtain a pre-approval letter from an actual lender, not just a so-called "pre-qualification letter" from a mortgage broker. A pre-qualification letter means: "We think you can get a mortgage but we haven't checked out your loan application yet." If you have a low FICO score, a mortgage broker can obtain a pre-approval certificate from a lender who specializes in low FICO score mortgages.

Most mortgage lenders do not charge for pre-approval certificates. They know once you have their pre-approval, you aren't likely to shop further for financing. But some lenders charge a modest fee, such as $200, which is applicable toward closing costs.