If your credit score on the FICO scale is 599 or below, your application for a home loan won’t be accepted by most lenders, as even those with scores between 599 and 700 are having a hard time getting their applications considered by major lenders.
But take heart because you’re not alone. Over the past two years, the credit scores of millions of American consumers have declined because of the recession. Fair Isaac Corp., the firm that developed the FICO score, says that around 43 million Americans or about one-fourth of all consumers with active credit records, have FICO credit scores of 599 or lower.
On the FICO scale, which runs from 300 to 850, a score of 599 is considered risky by lenders. Since the start of the housing meltdown, mortgage lenders have been accepting only the home loan applications of borrowers with FICO scores higher than 700. Even government enterprise Fannie Mae offers its best rates only to those with FICO scores of 740 or higher.
Is there something you can do to improve your FICO credit score? Yes, there is, and it’s called credit rescoring – a legitimate way to lift your score as long as it’s done by independent credit reporting firms that use procedures acceptable to the three major credit bureaus, namely Experian, Equifax and TransUnion. They’re also typically members of the National Credit Reporting Association.
When looking for a company to increase your score, be aware that there are a lot of enterprises on the Internet that promise dramatic repairs overnight, but which are actually just providers of lists of steps for credit improvement, or worse, run by people using all kinds of illegal means to grab money from others.
A reliable credit reporting firm can perform a legitimate credit rescoring by finding omissions in your file or errors that are dragging your scores down. After these errors are identified, the credit reporting firm notifies your creditors and the three national credit bureaus so that the errors can be fixed and your scores increased. There are also steps that your credit rescorer will advise you to do, such as reducing your usage of a certain credit account to boost your score.
According to credit reporting firm Credit Communications, the typical cost for credit rescoring ranges from $90 to $200, depending on the number of credit accounts to be fixed. Credit rescorers also need about three to five days to complete a rescoring. The firm also said that credit scores are increased by 25 to 32 points on the average, although there are borrowers whose credit scores have been boosted dramatically.
So if your credit score doesn’t qualify for a mortgage, don’t give up easily on your dream of buying a home. There could be errors in your credit files which can be fixed by credit rescoring.