FICO Scores and Mortgage Loans
Today, FICO scores are more important than ever, used not only by potential creditors but also by prospective employers, insurers, and even landlords. As the uses of FICO scores proliferate, so too do companies claiming to improve customers’ credit ratings, often promising to quickly and painlessly raise FICO scores and thus lower mortgage rates. Unfortunately, there is no “quick-fix” solution for a less-than-desirable credit score, and many of these companies’ practices are unethical, if not downright illegal. Furthermore, as consumers seek shortcuts to a better FICO score, Fair Isaac (the corporation behind the FICO credit score model) responds by limiting the factors that can influence credit scores.
For instance, Fair Isaac traditionally included authorized user accounts in credit score calculations, since a person’s history as an authorized user was a proven indicator of credit worthiness. In addition, parents were able to use the authorized user option to introduce their children to credit cards while closely supervising their activities, an action that also allowed young people to begin building a positive credit history without being granted potentially dangerous financial responsibility.
Recently, however, one method used by FICO score improvement companies to boost customers’ credit ratings has been to add customers as authorized users on strangers’ credit card accounts. The customer cannot actually use the credit card – indeed, has no interaction with the credit card or its legitimate user – but his/her credit rating improves as a result of the account’s good standing. The legality of this strategy is undecided, but there are steps being taken to change the FICO score calculation so that authorized user accounts are no longer included. Thus, it is no longer a good idea to get added as an authorized user to an account just to raise one’s FICO score. For right now it seems that this approach won't cut it to optimize your chances of qualifying for a California home mortgage loan.
Trying to get a mortgage loan with a less-than-desirable credit score can be incredibly frustrating, and the quick-fix solutions offered by credit improvement and repair companies are therefore very tempting. However, such solutions all too often involve fraudulent practices, requiring consumers to misrepresent their financial history.
Instead, people with bad credit histories should improve their credit scores the old- fashioned way – with time and care. Most negative items do eventually disappear from credit reports, and credit scores can be steadily improved by instituting responsible financial habits and accumulating new positive credit report items to replace old negative ones. Federal law allows all consumers to receive one free credit report from each of the three major credit reporting agencies (Equifax, TransUnion, and Experian) per year. Therefore, everyone is entitled to three free FICO score reports every year. Knowledge of what’s on one’s credit report is the first step to a good FICO score. If your credit score is low and you are insistent upon obtaining a loan, another option is a bad credit mortgage loan.
