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CREDIT REPORT PAGE
There is a lot of excellent consumer information about credit reports and scores, but it can be dry and overwhelming. There are also a lot of dishonest players to look out for. So I have attempted to present an honest and scaled down version with links to good information that can be relied on.
If you like, you can watch a 7 minute video of me explaining the credit reporting process with ordering through AnnualCreditReport.com which I recommend as your first step in obtaining a mortgage. Or just move to the next section down.
The best place to start
A FEW RECOMMENDATIONS PLEASE:
Order from at least two of the three bureaus.
Once viewed, please hold off on taking any action. Do not pay into any collections. And do not dispute any of the information until we discuss.
Do not close any of your accounts until we discuss.
Remember to keep your user and passwords and please print out a copy.
Once we have this information, you and I will do any necessary work to prepare your credit for when we pull the mortgage credit report which will be the basis for your loan program.
HOW LENDERS GET YOUR CREDIT INFORMATION AND WHAT WE CAN DO TO HELP YOU.
When I pull a mortgage credit report (or when any lender does), I use a "credit vendor" which is like a middleman that interfaces with each credit bureau. I use my vendor to do all the heavy lifting as needed to work your score to the highest level. The vendor consolidates the information and plugs your information into the model formula that mortgage underwriters require. This formula is a FICO score, but a different FICO formula from all others you may have heard about. It's not the same as Credit Karma, or a FICO you would get from a credit card or for obtaining an auto loan. It's very similar, but it will always be a different number - sometimes very different.
Once I have obtained the mortgage credit report, the vendor and I can use simulations to find creative ways to improve your FICO score even more which will provide better rates and mortgage programs for you.
HONEST-TO-GOODNESS RESOURCES.... :)
I recommend going to the FTC's page for excellent consumer information.
Here is the page for the Consumer Financial Protection Bureau for Credit Reports and Scores.
Beware of credit repair companies. Here is a link to National Consumer Reporting Association.
DO NOT GET INVOLVED WITH CREDIT REPAIR DURING THE PROCESS OF BUYING A HOME!
FAQ'S ABOUT CREDIT
Your Credit Questions Answered. Also check the General FAQ's Page.
WHAT INFLUENCES MY CREDIT SCORE THE MOST?
According to MyFico.com a Credit Score is created based on data within 5 major categories:
1. Payment History
2. Amount Owed
3. New Credit
4. Length of Credit History
5. Types of Credit in Use
Payment history is the most important factor accounting for about one-third for all types of credit scoring. So what that means is that two-thirds of your score has nothing to do with how you pay people back - which is interesting. So the other factors, how much debt you have and length of credit history are very influential. A lot of the score depends on inquiries and whether you are getting yourself into more debt.
What your credit score is not based upon is race, origin, sex, marital status, religion, whether you have an MD at the end of your name. You don't get more points for being a doctor than you do for being a bus driver - it has nothing to do with your salary.
Inquires that are used when you request credit is called a "hard-pull." Those can sometimes negatively impact your score especially if there are a lot of them. When you get your report through annualcreditreport.com or when your employer or an insurance company checks your credit, those absolutely have ZERO impact because you are not requesting credit.
IF SOMEONE DOESN'T HAVE A CREDIT SCORE, CAN THEY OBTAIN A MORTGAGE?
There are certain restrictions, but YES! You can obtain a conventional mortgage with 10% down without a FICO score. The lending amount is restricted through the debt-to-income ratio standard and the pricing and rate are risk based, and not having a score is a (small) risk factor. You will need to show at least two third-party credit references, one of which will need to be housing related over the most recent 12 months.
HOW CAN SOMEONE GET A CREDIT SCORE AND HOW LONG DOES IT TAKE?
The first place to go would be your bank. It should be easy to obtain an asset account based credit card. You can also have a family member co-sign an installment loan or credit card.
By having the account reported to the credit bureaus for six months, you will then get a score.
PLEASE READ MY BLOG FROM THIS LINK FOR MORE IDEAS AND DETAILS.
ARE THERE MORE THAN ONE TYPE OF CREDIT SCORE OR ARE THERE MANY DIFFERENT TYPES?
Not all credit scores are FICO scores and to be even more confusing, not all FICO scores are the same. For instance, if you elect to purchase your FICO score from annualcreditreport.com, that score will be different from the score I get from your "mortgage credit report." This is because there are different FICO models.
Some scoring models not only vary in how they weigh certain credit attributes, but use different ranges. Some Vantage scores (a competitor to FICO) go up to 990 whereas FICO only goes to 850. One may be under the impression that their score is 780, but when they have it run using one of the FICO models, it could be only 680. Then they might ask the loan officer, "hey, what did you do to my score?"
I think it is fine to utilize and even pay for a credit reporting service that gives you a score like Credit Karma, which has become very popular. You just need to know that when you apply for credit (i.e., create a hard inquiry) with the credit provider like me, our score will not be the same.
ONCE I HAVE STARTED THE HOME BUYING PROCESS SHOULD I STAY AWAY FROM OBTAINING CREDIT TO BUY FURNITURE IN ANTICIPATION OF BUYING A LARGER HOME? WHAT IF I WANTED TO BUY AN AUTOMOBILE?
The short answer is yes, please do not apply for any new credit until your closing is funded and finalized.
This is true even for special credit offers that postpones interest and required payments.
Even after your loan has been approved, the lender's underwriting department will constantly run soft inquiries to see if you are applying for new credit all the way until the day of settlement. Unfortunately, I have known of mortgage approvals being rescinded at the last minute because of this.
SHOULD I HIRE A CREDIT REPAIR COMPANY?
First, you can get a mortgage with bad credit. So paying a lot of money to increase your score, assuming it will work, may be a waste. As bad credit ages, it will have less and less an impact. I know a lot of people, clients and family members, with fantastic credit (780 +) who had terrible credit scores not that long ago. It's really like healing a broken leg, give your finances some smart "TLC' and some time.
But can it work? Yes. The repair companies "shot gun" disputes to remove all of your derogatory items. It's like a "shot-gun" instead of a "silver bullet." You and I in pursuit of your mortgage can use the later approach - which won't cost hardly anything. The "shot gun" approach can get some things to stick and improve the FICO scores. But it can leave remnants of the shot gun blast and make qualifying quite messy. This is because your disputes can many times stay in the credit records a long time which renders the report ineligible. Underwriters don't want to see accounts still disputed.
So if you want to use one of these repair firms, I recommend doing this several months in advance of applying for a mortgage.
Removed derogs can show up again and surprise everyone when it happens during the final stages of the mortgage process. So the shot gun could backfire.
WILL CREDIT INQUIRIES RUIN MY CREDIT SCORE?
When your credit is pulled by an entity for the purpose other than your request for credit, it is considered a "soft-inquiry" and has no impact on your score. Examples would be utilizing annualcreditreport.com, a new employer doing a back ground check or your insurance company checking when you request an insurance quote.
When you request credit and the creditor pulls your credit for this purpose, then that is considered a "hard-inquiry." If you are shopping for a loan for a home, car or student loan, multiple credit inquiries for the same type of credit are given a length of time where several inquiries are "de-duped" by the FICO models so that they are all counted as only one credit hard-inquiry.
Hard inquiries will not necessarily hurt your score unless they are excessive and fall outside the "de-duping window." Credit cards don't have a window and mortgage inquires have the largest buffer of 14 to 45 days. So a lot of high rate credit card shopping (i.e., at department stores, and other revolving accounts) can chip away at your score rather quickly. Similarly, multiple credit pulls from the same type of inquiry (mortgage, auto or student) that fall within this window will only count as one single inquiry.
You shouldn't be afraid of your credit score dropping significantly when you apply for credit because in most cases scores only drop 5 points (but can be higher for individuals with very high scores) - and credit scores will eventually rebound back to where they were. But you should be judicious when you do, especially for unsecured debt that do not have de-duping windows.
DOES A HIGHER SCORE GIVE ME BETTER LOAN TERMS?
Starting at a 600 (or sometimes 580) up to a 780 FICO score, there are price breaks along the way for every 10 to 20 points, depending on the loan product and the percentage of the down payment.
Because of this fact, as a regulated mortgage lender, one of our disclosures is to tell you that along with using your credit score to approve on deny your application, we use your score to price your loan which in turn effects your interest rate.
I WOULD LIKE TO DISPUTE ITEMS ON MY CREDIT REPORT. HOW DO I DO THIS AND WHAT HAPPENS NEXT?
By ordering through annualcreditreport.com, you can use their page where there is an easy way to do this right after you receive your report. But you can dispute information reported anytime you have a credit report run. This link will take you to The Consumer Financial Protection Bureaus page on disputing errors on your report.
Caveats to disputing:
Let me use an example. Let's say you have 4 account trade-lines, two of which are stellar and the other two show derogatory history and don't paint a nice picture. So in anticipation of applying for credit, you get your consumer copy of your report and dispute the two derogatory accounts. The credit bureau will start working on the dispute in 5 days and getting it all wrapped up in 30 days. So if in the meantime you run down to apply at a mortgage company, the mortgage company's credit vendor will dump your credit file into the FICO models and the models will automatically ignore the disputed accounts. But the trade lines will say the accounts are in dispute. You will potentially have a great score, but showing two trade lines in dispute. So that is how we always know and will condition a file based on resolving these disputes or for you to provide an explanation. Many times it takes a lot of work to get the bureaus to take accounts out of dispute investigations once they are started.
Because of a lot of people trying to trick the system, lenders are keenly on guard as it relates to disputed accounts.
Last, if you are in the process of applying for a mortgage or anticipate doing so in the next few months, disputing may disrupt and delay the closing. That's why it is advisable to work with someone like myself early in the home buying process.
That said, anytime we as consumers think there is a credit reporting error we should dispute the items with the credit bureaus. That should be the first place to go. You can dispute through the furnisher or creditor as well. From my experience in the business, you might spend a lot of time until you realize you aren't getting anywhere until you dispute through the bureaus. You won't be successful unless you can back up your justification. You can use this format, but back it up when you communicate with either the bureau who is reporting and/or the creditor. If you do get traction with the creditor or collection agency, have them send you the correction on their letterhead specific to what is being changed, updated or deleted.
CAN I OR SOMEONE LIKE BILL GATES HAVE A "PERFECT SCORE?"
I have never seen a perfect score nor has anyone I know in the business. So that's a whole lot of people. Why?
Because the scores are both complicated and take into account factors within factors considering every conceivable nuance a source of a risk.
So my question to you is, once you have a score of 800, instead of 850, what difference does it make? If you're above 780 your loan rate and associated cost doesn't factor in benefits above this score anyway.
When we order your mortgage credit report through our vendor, it will tell us the factors that went into why you did not receive a perfect score.
WHAT IF I HAVE A POOR SCORE AND WANT TO INCREASE IT SO I CAN QUALIFY AND/OR OBTAIN A LESS EXPENSIVE MORTGAGE (WHICH IS THE SAME THING AS A LESS RISKY MORTGAGE FROM THE POINT OF VIEW OF THE LENDER)?
This is where I can help you quite a bit. Sometimes an increase in your score will take your application across certain "price breaks" that will save you money. This is where my experience and expertise can payoff.
To be honest though, there are times that no matter how creative we are and how well we can predict the models, a good lender cannot get some files into an approval category. In this situation, the most important factors are paying bills on-time, making more than the minimum payment on revolving accounts and "waiting it out" until your score increases. I should be able to predict the time it will take. It's really to do what our Mom's tell us to do. Another way of saying this is to "give your credit score time to heal."
You should also know that just because your credit is poor today doesn't mean it will stay with you forever.
IF I HAVE DECLARED BANKRUPTCY CAN I GET APPROVED?
If you have a discharge (and not a dismissal) you can get approved right away on certain primary residence mortgages without a wait period. These special loans require high down payments and have higher interest rates.
For the standard mortgages that most people know about and discuss), there are wait periods that are mandated from the time of discharge. There are exceptions here so contact me before committing to anything, but FHA and small balance VA are two years from discharge date and conventional-conforming has a four year wait from date of discharge or dismissal.
IF I HAVE A TAX LIEN, CAN I QUALIFY FOR A MORTGAGE?
You can qualify for a mortgage under $726,525 with a Tax Lien under the following conditions:
You have a written payment agreement with the tax authority (IRS).
You must have proof of making three on-time consecutive payments.
You cannot prepay in advance in order to qualify.
So yes, with three months of seasoning you do not have to pay the tax lien in full.
The monthly payment is included in calculating the "Debt-to-Income" standard.
CAN I QUALIFY IF I HAVE OUTSTANDING COLLECTIONS?
You do not need to pay collections (most of the time) for mortgages under $726,525. Although paying off a collection may result in a better credit score which could be to your advantage or make you loan qualify for the credit scoring standard. You also may need to pay off collection if the money owed is high enough that it causes a disqualification with "debt-to-income" standards.
CAN A COLLECTION BECOME A JUDGMENT AND DO I NEED TO WORRY?
Collection accounts can become judgements.
If more than $2000 is owed in collections (non-medical), this may hinder your ability to be eligible for financing.
Creditors can come after customers with collection accounts, but usually don't if it's below $2000.
They are more likely to go for a judgement if the customer has good income and liquid assets.
WHAT GOES ON WITH JUDGEMENTS?
You fall behind, and creditor tries to collect what is owed.
Creditor eventually gives up and they sell or assign to 3rd party agency.
Collection agency will attempt as well as do some due diligence.
If they think they can collect, they will sue in court. The act of "suing" gets consumer to "show."
A deputy sheriff needs to serve the consumer. This sets it in motion.
Consumer can show up to defend. If there is not defense or they're a "no show," the judge will issue a judgement.
Once there is a judgment, the creditor can legally enforce it.
Judgements can last 10 years or sometimes longer if they renew judgement.
CAN I QUALIFY WITH A JUDGMENT OR TAX LIEN
Similar to a Tax Lien as described above.
You have a written payment agreement.
You must have proof of making three on-time consecutive payments.
You cannot prepay in advance in order to qualify.
The monthly payment is included in calculating the "Debt-to-Income" standard.