Know your credit score

The more consumers understand the credit scoring system used by lenders to qualify them for a mortgage, the better prepared they'll be when they apply for a loan, according to an article in the May issue of Realtor Magazine.

Credit scoring involves assigning numerical ratings to consumers on the basis of their credit history. Long used in consumer credit qualification, the procedure is now common in the home financing process and is widely recommended by secondary mortgage market entities Fannie Mae and Freddie Mac.

A credit score is a statistical way of predicting the likelihood that a borrower will pay back a loan. Factors include individual records of repaying loans and credit card bills, any public record like tax liens or bankruptcies, how often loans and credit cards are applied for and how much is actually owed. Proponents of credit scoring claim it helps more people qualify for mortgages by lowering the potential for bias, while opponents feel the scoring process can unjustifiably push creditworthy buyers out of the market.

Here are some tips on getting the best possible credit score:

*Don't order any furniture or appliances for the home before the mortgage is approved.
*Don't allow stores to run a credit check for a new credit card.
*Don't obtain a new credit card.
*Pay all credit card bills on time.
*Refuse increases in your credit limit if the increase is more than you need or high in relation to your income.
*Pay off and close existing accounts with finance companies.
*Close out unused credit card accounts.
*Maintain at least one of your oldest cards to show a lengthy credit history.