About Credit

Credit Reports.....

What are they & how to improve them

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The credit score is a computer-generated summary calculated at the time of the request and based on information a consumer reporting agency or lender/broker has on file. The scores are based on data about your credit history and payment patterns. Credit scores are important because they are used to assist the lender/broker in determining whether you will obtain a loan. They may also be used to determine what interest rate you may be offered on the mortgage. Credit scores can change over time, depending on your conduct, how your credit history and payment patterns change, and how credit scoring technologies change.

Because the score is based on information in your credit history, it is very important that you review the credit-related information that is being furnished to make sure it is accurate. Credit records may vary from one company to another.

The possible credit scores used by Equifax range from a low of 300 to a high of 850.

The possible credit scores used by Experian range from a low of 395 to a high of 848.

The possible credit scores used by TransUnion range from a low of 375 to a high of 900.

Do you know if your credit report is accurate? Reviewing it once a year is suggested but DEFINITELY before you go shopping for a mortgage!

If your credit report has incorrect information reported, or if other information (such as paid accounts showing as open) need to be updated, the consumer should contact all three of the repositories to ensure that corrections are made in all three systems. Typically it takes 30 days for the national repositories to investigate and update a credit file when requested to do so by a consumer. Another option for clearing up your credit is through such programs as "Bureau Direct" or "Rapid Re-score". There is a cost associated with the service, but credit can be changed in 48 to 72 hours rather than the usual 30 days.

How credit scores are calculated

Credit scores are predictive indicators of a borrower's likelihood of repaying a credit obligation. They are weighted according to the following criteria (example below, can vary per reporting agency):

35% -- Major and minor delinquencies including late payments, collections, judgments, and bankruptcies.
30% --Amount of outstanding debt and balance to high-credit ratios.
15% -- Length of credit history (how long accounts have been open).
10% --Inquires or applications for new credit
10% Type of credit (revolving versus finance company credit).

Note - Information that is not considered in credit scoring includes race, religion, gender, marital status, borrower's address, wages, height, weight, or birthplace.
* There are four factor codes listed on a credit report, which point out the actions that are impacting your score. These are the areas you need to address to change a score.

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How to Improve a Credit Score

Credit scores reflect a borrower's credit payment patterns over time with the most emphasis placed on recent information (24 months). There are some other strategies a potential borrower can employ that may have a positive effect on his/her score.

Pay down the balances on revolving accounts. Credit scores are more negatively affected by delinquencies on revolving than installment credit. In addition, high outstanding balances on revolving accounts can have a major impact on the score. By reducing the balance, but not closing the account, the borrower will improve their balance/high credit rations and positively impact his/her score. If your balance one account is more than 50% of the credit limit it may drag your score down. It will take the bureaus at least 45 to 60 days to reflect a lower balance. The credit bureaus can only change lower credit balances with time, not with any repair program. See how long it will take to payoff credit card balances. By paying more than the minimum payment requested your credit will improve quicker.
Pay past due accounts current.
Avoid credit surfing. This is the practice of shifting revolving credit balances from one card to another, usually to take advantage of low introductory interest rates. The combination of inquires and newly opened balances, especially since new balances will show on a credit report before old ones are reported as paid, can make a consumer appear to be in search of new credit.
Avoid finance company credit. New credits in the form of cash loans from a finance company have more of a negative impact on a borrower's score than other installment or revolving debt. Borrowers should also avoid 90-day 12 months same-as-cash finance company transactions in the months preceding their loan application.
Have erroneous information corrected or updated. Borrowers should pay particular attention to the accuracy of the credit history, such as the dates of last activity and/or delinquency, since recent information has the greatest impact on credit scoring.
Avoid creating numerous inquires. Each inquiry can lower your score.
Have your scores corrected as soon as possible. Some useful links to visit are:

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