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Credit Resources

You may have information on your credit report that is inaccurate or that need to be addressed. We hope that you will find our resources useful.

Correcting Errors

You have the right, under the Fair Credit Reporting Act, to dispute the completeness and accuracy of information in your credit file. When a credit reporting agency receives a dispute, it must reinvestigate and record the current status of the disputed items within a "reasonable period of time," unless it believes the dispute is "frivolous or irrelevant." If the credit reporting agency cannot verify a disputed item, it must delete it. If your report contains erroneous information, the credit reporting agency must correct it. If an item is incomplete, the credit reporting agency must complete it.

For example, if your file showed that you were late in making payments on accounts, but failed to show that you were no longer delinquent, the credit reporting agency must show that your payments are now current. Or if your file showed an account that belongs only to another person, the credit reporting agency would have to delete it. Also, at your request, the credit reporting agency must send a notice of correction to any report recipient who has checked your file in the past six months.

For those items in your credit profile which you feel deserve further explanation (such as an account that was paid late due to the loss of job, military call-up, or unexpected medical bills), you may send a brief statement to the appropriate credit reporting agency. The information will be placed on your credit profile and will be disclosed each time your credit profile is accessed.

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Credit Scores

In the course of my work, I regularly come across clients with questions about their credit scores, how to improve them. Given that the rates you pay on everything from mortgages and car loans, to insurance rates and credit cards depend upon your scores, these are all valid concerns. So let’s take a closer look…

It was in 1991, when credit scores first became available at all three credit bureaus - TransUnion, Equifax and Experian. And even then, it took until 1995 before Fannie Mae and Freddie Mac recommended that all lenders begin using credit scores in evaluating potential borrowers. The scoring system itself was the brain child of Bill Fair and Earl Isaac, who formed the Fair Isaac Company (FICO) in 1956. And this is why you may have alternatively heard your credit score referred to as your FICO score. All three bureaus use the FICO scoring systems, with only minor alterations. And while these minor differentiations cause some variation in the possible range of scores, FICO scores run roughly from 300 – 850.

So what’s a good score and what is a bad score? Well, currently mortgage companies are looking for a score of at least 620 to 640, in order for you to qualify. Although, I have seen a few market participants beginning to offer sub-prime financing again, for scores as low at 580. However, the rate you pay for that type of financing is always higher, and typically requires a larger down payment. Conversely, the best loan terms are offered to people with scores of 740 or higher.

OK, then how do I get a 740 score? The answer is you need to have enough good credit to begin with. In our cynical world, you are rewarded with better scores for having a lot of open and unused credit, rather than by living something closer to a cash lifestyle. In fact, I cringe when I hear a new client tell me that they just closed a bunch of old credit cards, prior to applying for a new loan. I have literally seen 100+ point drops, as a result of this misconception. So just know the scoring system looks at what percentage of your limit is being utilized on each credit card. But just as importantly, they also calculate what percentage of all your revolving credit is currently outstanding, compared to the total credit you have available! Consequently, one of the easiest ways to increase your FICO score is to have your credit card limits increased - as counterintuitive as that may sound.

In addition, all mortgage lenders now have access to a FICO based “credit analyzer”. This tool can be used to analyze you current score, and make recommendations for the shortest path to achieving a targeted outcome. On well over half of the recommendations I see, one of the suggestions is to open a “secured credit card” and place a $10 balance on it. This amounts to taking $300 - $500 from your savings and giving it to the bank to lend back to you, via a new credit card. This technique may be used successfully by younger people looking to establish a credit record, as well as by those who are trying to recover from some adverse credit event. Younger people may also benefit by knowing that some creditors never report your credit, unless you are late. Therefore, if you have a perfect payment record with your cell phone, cable or other utility provider, you may want to ask them to submit your rating to the credit bureaus. Many large apartment management companies also have this capability. So don’t be shy!

What if I have an issue and can’t make all of my payments? What should I do then? The first thing to do is prioritize your debts correctly. Housing or rent payments should be at the top of the list, followed by installment payments for cars and student loans, with credit card payments addressed last. Next, if you have to make a decision about who is NOT going to be paid this month, then pick up the phone and call them – BEFORE the due date! Very few people go through life without some financial calamity befalling them. When it happened to me many years ago, I was horrified. However, I was pleasantly surprised to find the creditor offered to let me skip that month’s payment, without any late reported on my credit report! They did add the late fee to my balance, but my FICO score was not impacted. So the best defense of your credit score in times of trouble is to be proactive and communicate. Explain the issue and ask for some temporary relief. Creditors are actually keen to help – IF you engage them early on. Don’t wait until you are 30-60+ days late to make that call. The damage may already be done, and you will find creditors far less open to such negotiation.

My credit report has an error on it that is adversely affecting my score, what should I do about that? First let me say that I would avoid most so called “Credit Repair” companies. In general, I have not found one that does anything a consumer could not have achieved on his or her own. They are also very expensive and the results can be very disappointing. The best thing to do is to contact each of the credit bureaus and request a free credit report from them. Federal law requires they provide you one per year, upon request. They generally won’t tell you what your personal score is, unless you subscribe to their services. However, you will get a chance to look at all the credit entries on your report. That gives you the chance to catch any errors early on. The next step is to call the creditor in question and confront them with the error. Creditors are required by law to respond in good faith. So most of them are happy to make corrections, and your score will be restored the next billing cycle. If working with the creditor on the phone doesn’t work, ask them where you can address your dispute in writing. Send you complaint to wherever you are instructed to, but be sure and use a return mail receipt (the little green card you get at the post office). This will provide proof of your letter being received by the creditor. In addition, you should keep a copy of any written correspondence you send and receive. You should also keep a phone log (date, time, and who you spoke too, including their employee numbers) for every conversation you have. You may need this back-up information to register your dispute with the bureaus, in the event the creditor refuses to remove or correct the entry. If that happens, you will need to file a formal dispute with each of the affected bureaus. Once a dispute is filed with the bureau, the item should no longer factor into your score. However, here is where good record keeping comes into play.

When a mortgage company sees a dispute, they will ask you to document your efforts to resolve it. If the documentation and your dispute are legitimate, then the mortgage company will allow you to use the improved score for qualifying. On the other hand, if the mortgage company determines that the creditor’s original entry was appropriate, and your dispute was merely designed to improve your score, you may be required to remove your dispute with the bureaus in question. At that point, you score will be corrected to the lower level you started with. So the point here is that disputes are intended to correct errors and legitimate disagreements only.

Finally, your FICO score is often viewed as a character score. Most major employers pull credit reports on perspective employees for that reason. Certainly, everyone stumbles when it comes to their finances, at some point in their life. However you may not know that your credit report shows late payments and collections, up to seven years ago.  And it shows public records (bankruptcies, judgments, etc.), as far back as ten years. A consistently spotty pattern of repayment never speaks well of you, and could end up costing you a lot! Contact information and dispute resolution procedures can be found at the web site for each of the three bureaus at www.TransUnion.com, www.Experian.com and www.Equifax.com respectively!

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FREE MORTGAGE CONSULTATION

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FAQ on Qualifying Applicants with Credit Issues