A COMPLETE DO-IT-YOURSELF KIT FOR MY CLIENTS
How to Analyze Your Credit Report
How to Negotiate with Creditors
How to write Dispute Letters and follow up
The Consumer’s Bill of Rights
Samples and Forms to Help You
Credit Repair Flow Chart
As you go through this explanation, you should have your “merged in-file”, also called “Bureau Express” or “pre-qualifying” or “preliminary” credit report in hand. Lenders always polls all three credit repositories, and obtains your three credit scores right away. This sectionnwill explain in detail what you are looking at, and how to decipher your report. First, please be aware that some of the accounts could appear more than once. This need not be corrected. Since there are three competing credit repositories, Experian, Trans Union and Equifax, any one or all three of these may have the same information.
On your Bureau Express report, each one of your accounts will show which of these companies are reporting by use of a one-letter code. R is Experian, U is
TransUnion, and Q is Equifax. These three competing repositories each have their own scoring model, and these credit scores are VERY important to your lender.
TransUnion, and Q is Equifax. These three competing repositories each have their own scoring model, and these credit scores are VERY important to your lender.
UNDERSTANDING CREDIT SCORES
Credit scoring has been around since the 1950’s, and credit bureau scores – scores based solely on credit bureau data – became available in the 1980’s.
It is a statistical method of assessing credit risk, summarizing the relative likelihood that an individual will repay a loan whether that loan is a credit card or a home mortgage. This credit score is calculated from a scorecard driven by credit related variables ranging from number of open accounts, active accounts, types of accounts, past delinquencies, severity of delinquencies, length of credit history, current level of indebtedness, and level of recent inquires.
Each pattern corresponds to certain likelihood that a consumer will make his or her loan payments as agreed in the future. The score is based on all the credit-related data in the report – not just negative data such as missed payments or bankruptcies.
The credit agencies determine the variables and their relative weight within the scores. Because this information is proprietary, they will not divulge the exact variables used to determine a credit score. The scores available from the three major credit repositories range from 365 to 840. Equifax refers to their score as the Beacon score, Trans Union as the Empirica score, and Experian as the FICO score. However, it should be noted that all of these scores are based on the model created by Fair Isaac & Company.
A 680 Beacon score means the same as a 680 FICO score, which means the same as a 680 Empirica score. The reason they differ is the fact that the three competing repositories gather different data. Although your merged in-file report may have duplicates, it also will show some accounts reported differently by the three repositories, or by one but not the others, etc. The better the credit, the higher the score. Up to four reason codes (see explanations below) are given to explain a credit score. Some banks are taking the middle score and throwing out the lowest and highest. Whatever method the banks choose, their score will be used to determine your interest rate, how much you have to put down, and ultimately whether you can get a particular loan product at all.
To summarize, your credit score is similar to the SAT-Standard Academic Achievement scores will get you into college, or keep you out. In the SAT’s, 800 is a perfect score. FICO’s can sometimes go higher than that, but it’s rare. So, 840 is perfect, and anything above 680 is an “A”. Some lenders give pricing premiums to borrowers whose scores are above 700, or above 725. Many lenders, especially second trust deed, or equity line lenders, will simply denyany application submitted with a FICO score below 680.
The scoring program is extremely complex, and no one will tell you exactly what causes your score to be lower or higher than you expected. Experience has given us a pretty good idea of the most important factors, and they are listed here:
The scoring program is extremely complex, and no one will tell you exactly what causes your score to be lower or higher than you expected. Experience has given us a pretty good idea of the most important factors, and they are listed here:
Derogatory Items:
Any account information highlighted in gray is late, delinquent, or otherwise derogatory. There are four levels of badness: 30 days late, 60 days late, 90 days late, or write-off. You should go after the vendors for any and all of these items.
Public Records:
This section contains tax liens, civil judgments, and bankruptcies. These items weigh heavily, especially if they are recent, and especially if the repositories say they are unpaid. No mortgages are ever funded if the lender believes these are outstanding items.
Other Factors:
Length of Credit History: If all of your cards or accounts are new, your FICO score will be pretty low. They like to see 10 years or more. Proportion of Balances to Limits: FICO scores are lower for people who spend all the way up to their credit limits.
This also applies to new mortgages, when the balance would be almost equal to the credit limit.
This also applies to new mortgages, when the balance would be almost equal to the credit limit.
Inquiries: Whenever you shop for a car, or furniture, or any items you might want to buy on credit, the store will run a credit report on you. Every one of these inquiries lower your FICO score, so during the mortgage process, guard your social security number and credit checks very carefully. Unfortunately, in order to change the information that is appearing on your merged in-file report, YOU must write and request your OWN report from each of these repositories.
Please go to http://www.fiquest.com/creditrep.htm
You will find much more details about these tips, sample letters…BUT remember if you have any questions consult your lawyer, seek for legal advice.
Luci Edwards, REALTOR
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