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Credit Bureau Score A number representing the possibility a borrower may default. It is based upon credit history and is used to determine ability to qualify for a mortgage loan.
If you are shopping for a mortgage with a lot of lenders and we tell you while reviewing your credit report with you that your score has suffered due to excessive inquiries, we may ask you to prepare a letter of explanation which may help us to minimize the effect of the penalty in getting you the loan program you deserve. A 720 fico normally will get you the best rate on the market. Identity theft is becoming one of the leading causes for incorrect information on credit reports. The best way for you to protect yourself from Identity Theft is by monitoring your credit report. With the heightened awareness of Identity Theft, Federal Law was passed in 2005 to allow anyone to get one free copy of their credit report per year. There are 5 factors that impact your credit score:
1) Payment History
2) Outstanding Credit Balances
3) Credit History
4) Type of Credit
5) Inquiries Credit scoring has been utilized by lenders for over 30 years. Credit scoring is a technology used by credit grantors to qualify the risk associated with extending credit to a given borrower. Risk is quantified by means of a score card which calculates a numeric value, or score, for a credit applicant a lender wants to evaluate. Score calculation is done based on information that has been determined to be indicative of future credit performance. There are many types of scoring methods currently utilized today including credit scoring, applicant scoring, behavioral scoring and several others. The type most relevant to the mortgage industry is credit scoring and among the most widely recognized is the FICO SCORE. A value (score) is assigned base on the following criteria, in the order of their weight in the scoring formula, payment history, outstanding balances in relation to credit limits, length of credit history, number of inquiries, and the type of accounts. There are three major credit bureaus that lenders use to "pull" your credit.
These companies are:
• Experian (Formerly TRW)
• TransUnion
• Equifax
Each of these companies maintains a separate credit report on you based off information gathered from your creditors. Depending on who your lenders are and which Credit Bureau's they report to, if not all three, will determine the differences in your credit report from each company. At a bare minimum you need to order a report from one of these companies directly or through an intermediary. The best thing you could do is order a Tri-Merge report. This report is one that merges the information from all three Bureau's into one report so you can see the information that all three credit providers are reporting about you. Mortgage Professional will have access to this report for a reduced fee.
In order for these accounts to be added to your credit report you must actually use the newly issued card at least once to activate it. It usually takes about 90 days for these types of accounts to be reported on your credit report. The scoring model will differ depending on whether you're applying for a mortgage, credit card, auto loan, or insurance. Credit scores you get from companies that advertise online many times are in fact not the actual score your Loan Officer will see. These scores are not based on the same scoring models that are used when have your credit pulled by your Loan Officer for the purpose of a mortgage loan. FICO scores generally range between 300 and 900.
Scores are based on a person's whole credit picture. No one factor determines a score. A credit score is a composite of both positive and negative information such as missed payments or bankruptcies (if any) as well as accounts paid satisfactorily. That said, several areas of the credit bureau report carry the most weight in a credit score. Pay your bills on time. The longer you pay your bills on time, the better your score. Late bill payments can have a negative impact on your score. You might consider getting added as an authorized user on a credit card account that has excellent payment history is over three years old and has a high credit limit with a low balance. This could increase your credit scores by as much as 20 points per account. Slight variations in your credit score can have a dramatic effect on the rate you can receive on a home mortgage. Always review your credit to be sure it is correct. When shopping for a mortgage or any item that may require a credit check, do not allow your report to be pulled too many times. If your report is pulled too many times, in a short period of time, your credit score may adversely affected. Free Credit reports advertised never give you detailed information. It gives you just the accounts open and their balances. They don’t give you scores. A free report is not always the best representation of your credit. You should consult with a mortgage counselor to get a more detailed view. In the near future, perhaps as early as sometime in 2006, a fourth credit bureau will start to create a repository for creditors to send monthly data on called Innovis. Innovis already is a leading repository for business-to-business credit and personal data. At this point, it is likely lenders will alter their guidelines to accept 3 of the highest, or even 3 of the lowest credit scores of the four. It is speculated that other combinations of data usage are plausible as well. A credit check inquiry stays on your credit report for 12 months.
Services are now available to help you increase your scores. Rapid Rescoring is one of them Most lenders obtain scores from three sources and use the middle score to base your qualification. Be careful in paying off old collection items or charge offs. Many times the debt will be re-aged to look like a new collection on your report. Credit bureau-based scores cannot use demographics prohibited under the Equal Credit Opportunity Act, such as race, color, religion, national origin, gender, age, marital status, receipt of public assistance, or exercise of rights under the Consumer Credit Protection Act. Lates after a Bankruptcy will affect your credit scores more then if you did not have a Bankruptcy. Errors on your credit report are one of the top reasons for a lower credit bureau score. Because errors are such a common thing it is a very good idea to utilize your free annual credit report from each the 3 credit bureaus once per year. This will allow you to get an idea of what the lenders see when they look at your credit and it will give you an opportunity to stay on top of your credit and make sure there are no errors contained within the report. When you obtain a copy of your free credit report it will not contain your credit bureau score. If you would like to see what your score is you will need to pay extra for that. Once you have discovered an error on your credit report take care of it right away. If you are dealing directly with the bureau's it can take up to 30 days to update. It is possible now to have your credit profile frozen by the credit bureaus and the only way to access your information is by using a pin number that you select. This ensures that nobody but you will be able to grant access to pull your credit. Different scores are generated for different types of loan transactions. There are separate scoring criteria for mortgage, automobile and consumer credit borrowing. This means you may have a different score (and hence a different risk factor) when an auto dealer pulls your credit than when a mortgage broker pulls it. There have been five scoring models (mathematical equations) for determining your credit score. Beginning in 2006 the three major repositories are supposed to be using the same one. This should help to bring the three scores more closely in line. In the past you could often see a 100 point or more difference from one bureau to the next. For example, Transunion may show 550 and Experian 650. Your credit bureau score is a big factor in determining your interest rate and your ability to qualify for a loan. Even after you apply, changes to your credit bureau score can change your interest rate and your ability to qualify.
Many lenders check your credit report shortly before closing. A drop in your score coul have an adverse effect on your loan.
Some borrowers, when refinancing or applying for a debt consolidation loan, decide to not make a payment on a loan that will be paid off. Don't do this without consulting your mortgage professional first. There are many quality sites that monitor your credit scores. For very little money you can be updated every time your credit score changes and also run "what if" scenarios, to see "What if...I pay 'X' amount of dollars to 'Y' account" Here you can determine the most efficient way to raise or maintain your credit score. No more than seven inquires will be used to calculate the score. Multiple inquires within 14 days, will be counted as a single inquiry. This applies to auto inquiries and and mortgage inquiries. Being late on your mortgage is no worse than being late on your credit card. A 60 day or more late is significantly more damaging than a 30-day late. In most cases an unpaid collection is just as bad as a paid collection. The credit bureau score is different for each bureau. They each have there own model in how to score an individual. It costs the creditor money each month to report you to a bureau. This is why some creditors only report to 1 bureau vs all 3. Credit scoring is a scientific method that uses statistical models to assess an individual's credit worthiness based on their credit history and current credit accounts. Credit scoring was first developed in the 1950s, but has come into increasing use in the last two decades. Your credit score can play a vital role when lenders decide to extend you a loan. Over 75% of mortgage lenders and nearly 100% of subprime lenders review your current credit scores when making lending decisions, and depending on your score they may offer you a different rate or term then they would otherwise. Be very cautious with companies promising quick fixes for poor credit. Check with your local office of the Better Business Bureau or ask your loan professional who they would recommend to help you. No matter who you are as a person, your credit score only reflects your likelihood to repay debt responsibly, based on your past credit history and current credit status. Biggest single factor to credit score is your mortgage. Having one mortgage late is a red flag. By keeping all of your revolving credit balances below 50%, you will get a higher score. Below 30% is even better Yes, mortgage accounts are looked at big time. FICO scores are most affected by lates on mortgages than lates on credit cards. They figure, if you cannot be financially responsible enough to pay for your house (the roof over your head) then you are not financially responsible at all. I've seen 100 points be taken away from a single 30 day late on a mortgage. Sometimes credit bureaus can report inaccurate information about you. It is important to resolve these issues since they may hurt you in the loan process. You should talk with your broker about any inaccurate information or contact the three major credit bureaus.
Equifax Credit Bureau
P.O. Box 740241
Atlanta GA 30374-0241
(800) 685-1111
Experian (Formerly TRW Credit Bureau)
P.O. Box 949
Allen TX 75013-0949
(888) 397-3742
Trans Union Corporation (Credit Bureau)
Consumer Disclosure Center
P.O. Box 390
Springfield PA 19064-0390
(800) 916-8800
(800) 682-7654
(714) 680-7292
It is important to check your credit report annually for errors or potential fraud. If you suspect errors, immediately contact the three credit reporting agencies. If you believe there is wrong information, you should be prepared to provide documentation to the agencies so that they can clear it up.
There is a new credit bureau scoring system that is being considered by lenders. It is called a Vantage score. The credit bureaus sell your profile to other lenders as soon as a mortgage enquiry appears on your report, so that they can contact you and compete for your business too. If there is incorrect information on your credit report such as a payment that was reported late that should not have we will be able to correct the information within 3-5 days by going directly through the 3 major credit bureaus and get a rescore to reflect what your credit score should be. It might be worth taking a look at your credit report to see just what potential lenders are going to find on your report. In fact, you are entitled to a free credit report within 60 days if a lender has denied you credit based on their review of your credit report. Your payment history accounts for about 35% of your credit score and another 30% is the amount owed. So making timely payments and keeping balances about 20-40 of the available limit play a major factor in your credit score. There are some companies that promise that by paying them money they will simply erase bad accounts from your credit report. Often, this is something you can do on your own by simply writing the three major credit reporting agencies and disputing the accounts. In response to consumer outcry regarding the discrepancies in credit scores from agency to agency, the three major credit agencies have created a uniform scoring system. The new system will mean that differences in credit scores are attributed to differences in the data each agency has in a consumers file, not in the way the agency generates the score.
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Information listed above is to be used for educational purposes only and is not guaranteed
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