Understanding Credit Reports & Scores Consumer Reporting Agencies (CRA) like Equifax, Trans Union & Experian, collect data from many sources to make up your credit report. They are regulated by the Federal Trade Commission (FTC). Most reports include information on when the account was opened, highest balance, current balance, current payment, dates of past due payments and more. The account types listed on the report with payment ratings include installment (Auto, RV, Boat, Finance Co., etc.), credit card, home loans, student loans, Child Support and others. Bankruptcies, Court Judgments, Charge Offs, Collection Account and others, are also listed showing closed(paid) or not. Most reports are about 30 to 90 days behind on the information listed on the date the report is run. Generally, information falls off the report when it is seven years old two ways: a) since the account was reported paid b) negative marks seven years after the date of the late. Bankruptcies can stay on 10 years and some other things can stay on longer. For more information on credit, finish this web page, then go to the FTC’s Credit Menu. There are many local companies that run credit reports. CIS, Executive Reporting Service (ERS) and others like them, pull the data from the CRA’s and put it together in their own format. A full report (Standard & Factual) where the local company runs all three CRA’s, calls the applicant & employer, updates balances & other things, costs about $70. This used to be the standard report required. Now, frequently, lenders will accept a "tri-merge" where they run all three CRA’s and provide the "raw" data with names, addresses and phone numbers of everyone on your report. The "tri-merge" costs about $18. Most mortgage brokers have access to at least one of the CRA’s directly and will run one at a nominal fee or free, for applicants. We run an Experian for our applicants at no charge for a pre-qualification. Credit Scores are the newest thing misunderstood by the consumer & a lot of mortgage Loan Officers. Credit Scores are a number based on a statistical program assigning "points" to all parts of the credit report. Every time your report changes, your score changes. Every inquiry on your credit, high balances in relation to your credit limit, late payments (especially recent to within the last 12 months), negative marks (especially unpaid) will lower your score. Your report will show what score factors are negatively effecting your credit report the most. Scores from 640 to 680 are "average" credit with 700+ "excellent" (These are subjective based on our experience). You can have a 620 score though and have no late payments listed, and might easily get a new loan. Other factors have caused the score to drop. These factors are listed on the report lenders run. Conversely you can have some recent lates and a score of 720, and have difficulties getting a loan. The Credit Scores are a tool, not the whole story. Most 30 year fixed rate loans at low rates, require a minimum score of 620, but we have seen approvals even into the low 500's. When we run your credit report, we will provide you with your scores and score factors for free. Credit Scores have helped with many new loan programs. There are loan programs available at less cost to consumers with higher Credit Scores. Higher Debt Ratios (payments to income) can be approved with higher Credit Scores. Some First Time Buyer programs require a higher Credit Score to get into a house with less money or no money. If your Credit Score is low because of erroneous data, it can be frustrating. To improve your Credit Score the basics are, first repair any wrong information (See Fix Credit Report Errors, a How To below), keep inquires to your credit at a minimum, pay any unpaid negative marks and pay everything in the future on time. Don’t make any new debt and try to pay down balances. It will take time to improve your score. The lower your starting point, the longer it will take. There is an excellent publication from the FTC on Credit Scoring you can read for more information.
Fix Credit Report Errors, a How To Simple, you contact the creditors (Sears, US Bank, GMAC, etc.) reporting to the CRA (Equifax, Trans Union, Experian) and the CRA’s themselves and have it changed. In reality it is time consuming and hard work. It takes a while to have results but not only is it worth it, it needs to be done. Phone calls do not accomplish much when repairing credit. The creditors will try to "brush you off" by saying "dispute it to the CRA's" or some other excuse why they cannot help you. Do not let them push you around. Know your rights. we recommend mailing everything, certified mail return receipt and keep copies. Keep a log of what you do. Never pay an old collection account with a promise of "We will take it off your credit" or "We will mail a letter", "after you pay us". Get your letter as you give them money. We have helped many people improve their credit enough to buy a house.
We strongly urge you not to use a "Credit Repair" Service. They cannot do anything that you can’t do yourself with the FTC’s help and they are expensive. The FTC has even published a warning to consumers about these "Credit Repair" companies called Help Yourself First Alert you might want to read before signing a contract with them. If you need to apply immediately for the loan, we can help guide you on what can get corrected quickly and help you to write Credit Explanation Letters. We'll speak to an underwriter to get a sympathetic ear for your situation. We have many loan programs available to buy a home or refinance, with extensive credit problems. The FTC’s How to Dispute Credit Report Errors has detailed instructions, your rights and even a sample dispute letter but in real world corrections, everyone doesn't follow the FTC laws.
Equifax, Trans Union, Experian You can request a free copy of your credit report within 60 days of a denial, otherwise you can request a copy anytime for a small fee. You can also request a copy once a year from the CRAs. The only way to get these three free credit reports is through a website at www.annualcreditreport.com (For security purposes, site can be accessed by typing the web address only [no links allowed] or by calling (877) 322-8228) or call (877) 322-8228. You can contact the three CRA’s by mail, phone or via the Internet by clicking on their link below..
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©
2008 Steve Emory at Pacific Residential Mortgage, LLC. All rights reserved.
