Credit Score FAQs

You’re now able to get your credit report for free regardless of your employment or financial situation. A recent amendment to the federal Fair Credit Reporting Act (FCRA) mandates that each agency provide you with a free copy of your credit report, at your request, once every year, from www.annualcreditreport.com. Note that you will still need to pay for your FICO score regardless.

Only your FICO score is used by most mortgage companies to check your credit. The FICO score became the gold standard in the mortgage lending world when Fannie Mae and Freddie Mac endorsed its use for evaluating mortgage loan applications in the mid 90s.

The easiest and most convenient site to order your FICO credit scores is through Fair Isaac’s consumer website: www.myFICO.com.

This is the only site where consumers can order all three of their FICO credit scores from all three credit bureaus. You can also order scores from the credit bureau websites directly but you should be aware that you’re not necessarily going to get a score that lenders use.

Learn more by downloading the Understanding FICO Scores Guide from myFICO.

Credit scores measure credit risk. Lenders and creditors use the credit score to determine how much of a risk you are as a borrower or a creditor. You’d be surprised at how your actions as a creditor can affect your credit score. For example, did you know that closing out an account that still has a balance lowers your credit score? Indeed, it does. Read on to find out more behaviors that affect your credit score.

• Pay Your Bills on Time
  The best thing you can do to improve your credit score is to pay your bills on time. Late payments have the biggest impact on your score. If you cannot make a payment, make arrangements with your creditor or lender as soon as possible. In many cases, your creditor or lender can work with you to waive a monthly payment.Many banks have online bill paying systems that allow you to send payments automatically. If your bank has such system, take advantage of it to avoid falling behind on your monthly bills.Improve Credit Score
• Avoid Max-Outs
  Having your credit account balances at or close to the limit is harmful to your credit score. Maxing out your credit cards makes it seem as if you are taking on too much debt. A good rule of thumb is to keep balances at or below 30% of the limit. That means, if you have a credit card with a $1,000 credit limit, you should keep your balance below $300.
• Don’t Close that Account Just Yet
  A longer, well-managed credit history has a much better effect on your credit score than a short history, even if you paid all the bills on time. Try keeping your oldest credit account open as long as possible, especially if the relationship continues to be beneficial.Never close out a credit card that still has a balance. This makes your credit limit drop to zero while your balance still remains. The effect is that it looks as if you have maxed out your credit card, and subsequently decreases your credit score.
• Keep Credit-Based Applications to a Minimum
  Avoid applying for credit cards unnecessarily, even if the store clerk says you can save 10% on your purchase. Each time you make a credit-based application, an inquiry is added to your credit report. Numerous inquiries lower your credit score. Before you fill out that application, ask yourself if you really need the credit card.

It’s virtually impossible to change your score in the time between when most people decide to buy a home or refinance their mortgage and when they apply. But there are strategies you can live with to make sure your score is as high as possible when you apply for a loan.

Also, make sure that the information each of the three credit reporting bureaus has on you is consistent and up to date. Order a copy of your credit report about once a year, and dispute any inaccuracies.

It’s said that by carefully managing your credit, you can add as many as 50 points per year to your score.

Remember, a less-than-favorable credit score won’t haunt you forever. Begin taking the steps to improve your credit score now and enjoy the effects later once your score starts to improve.

For more information on your credit score and how it affects your loan qualification, speak to one of our experienced loan officers.

Theoretically, if a series of credit reports is requested on your behalf during a limited amount of time, your score goes down until time passes without any inquiries. Changes in the law though have made “consumer-originating” credit report requests not count so much. Also, a series of requests in relation to getting a mortgage or car loan is not treated the same as a number of credit card requests in a limited time. This is because the credit bureaus, and lenders, realize that people request their own credit reports to keep up with what’s on them, and smart consumers shop around for the best mortgage and car loans.

Unsolicited credit card solicitations in the mail don’t count against your credit report, so don’t worry.

Credit report errors occur for a number of reasons but they can all have a negative impact on your eligibility for any future credit. It’s important to stay on top of your credit report to avoid any mistakes made by the creditors and credit bureaus – Equifax, Experian and TransUnion. Some common reasons for credit report errors include:

• The individual has applied for credit under several different names (i.e. John Doe and Jonathon Doe)
• Someone made a clerical error in entering or reading information (names, social security numbers, addresses, etc.) from a handwritten application.
• Mix ups with common names. For example, there is likely more than one John Smith living in New York City and often there is the chance that information intended for one John Smith might appear on another John Smith’s credit report as he applies for a mortgage.
• The individual gave an inaccurate Social Security number or the number was misread by the creditor.
• Loan or credit card payments were inadvertently applied to the wrong account.
• No matter what the reason, the erroneous information could reflect poorly on your credit file, thus causing approval problems when the time comes to apply for a job or obtain a mortgage. If you find errors, no matter how small, be sure you get them fixed, and make sure that you contact all three credit bureaus with your change.

Your credit report is a record of your credit activities. It lists all of your credit card accounts and loans, the balances as well as your payment history. It also shows if any action has been taken against you because of unpaid bills such as a lawsuit or bankruptcy filing. Because businesses use this information to evaluate your applications for credit, insurance and employment, it’s important that the information in your report is complete and accurate, especially if you plan to make a big purchase like a home.

The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.

If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:

1. The first thing to do is get a copy of your credit report from each of the three major credit reporting agencies (CRAs): Equifax, www.equifax.com; Experian, www.experian.com; and TransUnion, www.transunion.com.
2. In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. Be sure to make copies of your dispute letter and enclosures.
3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.
4. The FCRA mandates that all CRAs re-investigate the items in question – usually within 30 days – unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the credit card company. After the credit card company receives notice of a dispute from the CRA, it must investigate, review all relevant information and report the results to the CRA.
5. If the disputed information is found to be inaccurate, the credit card company must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.
6. When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the credit card company verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the credit card company.
7. In addition to the CRA, you should also write to the credit card company about the error. Again, include copies of documents that support your dispute. If you are correct – meaning the information you disputed is found inaccurate – the credit card company cannot use it again. Further, at your request, the CRA must send notices of corrections to anyone who received your report in the past six months.

A bankruptcy filing delivers a devastating blow to your credit and FICO score, but it doesn’t mean you have to wait 10 years before you can qualify for a mortgage. Many consumers who have filed for bankruptcy have been able to obtain a mortgage, although it is often at a higher rate than someone qualifying for a prime or “A-paper” loan.

While credit card companies may care about what happened before you filed for bankruptcy, many mortgage lenders are more interested in your recovery – what you’ve done since your filing. It won’t happen over night, but here are some tips and things to keep in mind when you inquire about a mortgage with a tarnished credit past:

• Give explanations.
  No mortgage lender is going to ignore the fact that you’ve filed bankruptcy and he or she will likely want to know the cause of the filing. Your lender will be particularly interested in whether the same situation could happen again. Your chances of being qualified are much better if your bankruptcy was caused by a single event such as a loss of employment or a death in the family, than if it was the result of “just spending too much.”If the bankruptcy resulted from a single event, it is important to show your lender paperwork describing the incident, such as the layoff notice or death certificate. You may also want to bring in court documents to indicate when the bankruptcy was filed.
• Demonstrate good money habits now.
  Many people who file bankruptcy swear off credit altogether, however, it is important to re-establish your credit rating. Get a secured credit card or take on some sort of loan – furniture, a car or a major appliance – to demonstrate that you are able to make timely payments. Make sure you are making other payments (utility bills, cell phone, etc.) on time as well. You won’t turn things around in a year but your credit score will improve over time.
• Dispute any credit report errors.
  There’s no need to add to your troubled credit history with errors on your credit report. Get a copy of your credit report from each of the three major credit reporting agencies: Equifax, https://www.equifax.com; Experian, https://www.experian.com; and TransUnion, https://www.tuc.com. If you encounter any errors, inform the CRA in writing what information you believe to be inaccurate and request deletion or correction.
• Save your money.
  Lenders may be more willing to loan you money if you’ve saved up a considerable amount of money for a down payment.
• Live within your means.
  Even sub-prime lenders won’t risk loaning you money for an opulent oceanfront mansion. Think small when the time comes to look for a home. Smaller homes often mean smaller mortgages.