How to Repair FICO Scores on Your Own
Most every loan program available in today’s mortgage marketplace requires a minimum credit score. Commonly referred to as “FICO” scores because The FICO Company developed the original algorithm used in the late 1990s to calculate this three digit number. FICO scores can range from as low as 300 to as high as 850 with the higher scores representing better credit. Not only can lenders use credit scores as a qualifying component when reviewing a mortgage application but lenders can also use credit scores to adjust an interest rate for a borrower. For example, someone with a 20 percent down payment and a score of 620 might be assigned a slightly higher interest rate compared to someone with a credit score of say 760.
Consumers can log onto any of the three main credit repositories to obtain a copy of their credit report as well as request a credit score but it’s important to note the credit scores consumers obtain on their own aren’t the same ones used by mortgage companies. The scores might be very similar but still they’re a bit different. This is important because if an applicant gets a score from a credit agency of say 640 but the mortgage company says the qualifying score is 610, it can mean the applicant must wait to get to a minimum score. If a lender requires a minimum 620 for a conventional loan and the qualifying score is 600, most likely the applicant will have to wait until scores improve.
There are credit repair companies that can assist those whose credit has been damaged to the point where their scores are too low to qualify for the home loan they’re seeking. Credit repair agencies charge a fee to help repair credit and know the ins and outs of what works and what doesn’t. A good credit repair company will first obtain a credit report from each of the three credit repositories, Equifax, Experian and TransUnion. While the scores will be similar, rarely are they all exactly the same. Merchants and creditors across the country can report at different times and on different accounts.
The main thing credit repair agencies do is to look for mistakes and properly document the errors while at the same time reporting these errors to the other bureaus. For example, a collection account paid two years ago is still showing up as unpaid reported by TransUnion. But documenting the error and updating all three agencies, the offending information is removed.
Consumers should also be wary of a credit repair agency that requires you pay upfront without disclosing your rights under the law. The Credit Repair Organizations Act requires credit repair companies to give to you a detailed report on the services to be performed, how long it will take and the cost. There is also a three-day right of rescission which allows you to cancel any signed agreement for any reason.