Your Credit
Score
Did you know that lack of knowledge
about your FICO score could expose you to predatory lending practices and
cost you thousands of your hard earned dollars?
Your Credit history is a very important
part of the lending decision. For
the lender, your credit report is an indication of your willingness to
repay your obligations on a timely basis.
If you have car loans, student loans, other installment loans or
credit card debts, the lenders who you send your payments to will report
your repayment performance to the credit bureaus each month. Most
borrowers have a good idea how their credit is even without seeing their
credit report. If you have
good credit it will qualify you for the most competitive interest rates
and the lowest down payment programs.
However, if you have had slow, or late payments in the past you are
not necessarily excluded from the mortgage market.
Referral Mortgage actually has programs for borrowers who are
currently in bankruptcy or foreclosure.
The interest rates and the required down payments are higher than
those for borrowers with excellent credit, however, the lending options
are available.
FICO Credit Score
A FICO score provides the lender with a
tool to predict the risk associated with lending you money. What risk is
the lender trying to avoid? Non-payment
and the risk of foreclosure. Lenders are in the money business.
They are not in the real estate business.
It is true, the lender has substantial collateral you give them
with a lien position against the equity in your home.
But, the lender does not ever want to exercise their right to that
equity. The FICO score gives
them a quantitative measure of predictability of risk.
The FICO is a mathematical model created by
the Experian Credit Bureau. Similar
models have been programmed by the other two major credit bureaus.
The Beacon Score comes from Equifax and the Empirica Score comes
from Trans Union. Credit
Bureau scores are all called a FICO Score.
A lender will use any one of these models, and your most
conservative lenders will look at all three.
Those that look at all three discard the lowest and the highest of
your scores as they make their underwriting decision for or against your
loan.
Many factors enter into your FICO score.
Some of the most weighted factors are: current balances on
accounts, too few bank revolving accounts, too many bank revolving
accounts, number of accounts with balances, number of accounts opened
within the last twelve months, length of time accounts have been
established, amount of past due accounts, number of delinquent accounts,
too few accounts rated current, recent derogatory public record or
collections, past due balances, date of last credit check to recent number
of inquires.
In the summer of 2003,
Fair, Isaac in partnership with Equifax, for the first time provided
specific information about how the scores were calculated, disclosing that
the most important factor (35% of overall score) is a person's payment
history.
One of the most controversial factors
affecting your credit score is the fact that credit checks and inquires
are weighted in such a way that they lower your score.
There is some confusion about how many recent inquiries reduce your
score. Some information indicates a range between four and fifteen
points.
FICO
scores range from 300 to 850. The higher the score the better.
The magic FICO score number is 620.
Lenders like to see a score of 620 and above. Statistics show that credit scores below 620 have a higher
default risk.
Scores change gradually as you change the
way you handle credit. Past credit problems impact your score less
as time passes. How do you improve your FICO score? Make sure
to pay all mortgage, installment, and credit card payments on time.
If you have too much borrowed, pay off your higher interest loans.
Don't take on any more debt. Call creditors to settle past due
accounts and collections. Additionally, you can consolidate your
debt and save hundreds per month by doing a cash-out refinance of existing
mortgages or take out a second mortgage and use the additional cash to pay off your
installment and credit card debts.
Credit Report Corrections
Credit reporting agencies purchase
information from the main four credit bureaus.
Only the bureaus themselves can make changes to their records.
To change or remove incorrect information, you need to contact all
four bureaus directly. If you feel there
are inaccuracies in your credit report, you
should print, complete and sign this Credit
Report Dispute Form and mail
it directly to each credit bureau along with a
copy of any supporting documents. The
bureaus do not share information with each other. Whenever possible,
always contact the creditor directly (bank, store, merchant, ect..) and
get something in writing along with the full name and title of the person
you spoke with. The Fair
Credit Reporting Act
(FCRA) is a summary of your rights regarding credit reporting.
Credit
bureaus such as Experian, Equifax, TransUnion, Innovis, Chexsystems,
Certegy and Teletrack are all credit bureaus. So are tenant screening
agencies and the MIB (medical information bureau). If you are denied credit, denied a loan, denied the right to cash
a check, or any other service because of a report provided by any of these
firms, ask them for a copy of "all the information in your file",
as required by the FCRA. All the bureaus must comply with
the law. Contact FTC
and U.S.PIRG if
you get nowhere with them.
EXPERIAN
1-888-397-3742
660
North Central Expressway; P.O. Box 949; Allen, TX 75002
EQUIFAX
1-800-685-1111
5505 Peachtree St. NW; Atlanta, GA
30309 -- P.O. Box 740241; Atlanta, GA 30374-0241
TRANSUNION
1-800-888-4213
760 W. Sproul Rd.; Springfield, PA 19064 -- P.O. Box 2000; Chester, PA
19022
INNOVIS
1-800-540-2505
1691 NW
Professional Plaza; Columbus, OH 43220 -- P.O. Box 1358;
Columbus, OH 43216-1358
If
you want your name and address removed from all mailing lists offered by
the credit-reporting agencies: Trans Union, Experian, Equifax and INNOVIS,
go to OptOutPreScreen.com,
or call 888-5OPTOUT (888-567-8688).
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