Lourdes AcostaFactors Affecting Your Credit Score
While we don't know exactly how a credit score is determined, FICO considers the following factors (the approximate weight it assigns to each factor is in parentheses):
- Payment history (35%). Your score is negatively affected if you have paid bills late, had an account sent to collection or declared bankruptcy. The more recent the problem, the lower your score -- a 30-day late payment today hurts more than a bankruptcy five years ago.
- Outstanding debt (30%). If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score. A low balance on two cards is better than a high balance on one.
- Length of your credit history (15%). The longer your accounts have been open the better.
- Recent inquiries on your report (10%). If you have recently applied for many new accounts, that may negatively affect your score. Promotional inquiries don't count.
- Types of credit in use (10%). Loans from finance companies generally lower your credit score. FICO says this is most important when there isn't a lot of other information upon which to base a score.
Although this is a good guide as to what credit scoring companies deem important, keep in mind that some companies may consider different factors.
Among the items that credit scoring companies cannot consider are age, race, gender, education, national origin, marital status and receipt of public assistance.
What the Numbers Mean
If you know your FICO score, then you can see what the creditors see and have the ability to get a jump-start. Here is a quick breakdown of what a score means to a creditor. When your lender is waiting for your credit report, anything below 600 will result in worry and anything above 700 is considered a success.
FICO scores will not only affect your ability to a get a loan but how much interest you pay for your loan too.
| 720 + | WONDERFUL! You are at the top with the best rates and terms offered to you. |
| 700-719 | EXCELLENT score. You are a very desirable borrower. |
| 680 - 699 | GOOD credit. You should be in strong shape to buy. |
| 660-679 | OK credit. Don’t look for other exceptions. |
| 640-659 | BORDERLINE. OK if everything else is strong. |
| 620-639 | WEAK. The rest of your file must be perfect. |
| 600-619 | DIFFICULT. Needs some work, or a special program. |
| Below 600 | TROUBLE! Try to fix up your credit! |
TOP 10 CREDIT MYTHS :
1. IF A MORTGAGE COMPANY CHECKS MY CREDIT, MY SCORE WILL GO DOWN.
If mortgage companies check your credit the score will not go down with every inquiry. Looking for a mortgage may cause multiple lenders to request your credit report, even though you are looking for one loan. To compensate for this, the score ignores all the inquires made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquires won't affect your score. In addition, inquires that fall within a 45 day shopping period reflect as just one inquiry when determining your score.
2. ALL CREDIT REPORTS ARE THE SAME.
Not all credit scores are created equal. The credit reporting agency stores information in your credit file containing both good and negative payment information. The Consumer Reporting Agency (CRA) which is either, TransUnion, Equifax or Experian, conducts a highly specialized risk assessment based on the information in your credit file to likelihood that the consumer will make the mortgage payments on time. This is not the same score that is optained by self inquiries. The risk assessment model to generate a credit score for a mortgage lender is different from that used to generate a score for different industries (auto, installment loans, credit cards and consumer credit)
3. CANCELING CREDIT CARDS BOOSTS MY SCORE.
When long standing accounts are closed, the impact may have negative results on your score. 25% of your credit score is based on the age of your credit history and the types of credit in use. The lenght of your credit history represents 15% or your score. The variety of credit (revolving debt, installment loan,etc.) effects 10% of your score. Closing accounts with negative payment information will not remove it. The information will continue to be reported for 7 years. Most lenders require that you have at least three open and active accounts reporting your payment history.
4. FICO SCORES ARE LOCKED IN FOR SIX MONTHS.
Your FICO score is a "snapshot" of your credit file at that particular point in time. As the date on your credit report changes so may your score. Most creditors report every 30 days. Your mortgage broker can submit documentation for removal of errors using a rapid score rescore system and obtain an improve score in 3 to 5 business days.
5. HAVING NO DEBT INCREASES MY CREDIT SCORE.
Zero balances will not automatically improve your credit score. Most lenders prefer that your credit report contain three to four open and actively reporting trade lines. 30% of a consumer's score is relative to the utilization of available debt. By maintaining the usage of 20 - 39% of the available credit of revolving debt, a lower risk is perceived and a higher score will result.
6. PAYING ALL MY DEBT WILL INSTANTLY IMPROVE MY SCORE.
Paying off all debts will not have an instant effect of raising your credit score. A credit report is a history of your payemnts. Paying off a debt doesn't change the past. Paying off a collection account will not remove it. It will stay on your report for 7 years.
7. ALL BAD NEWS COMES OFF IN 7 YEARS.
Not all negative credit is removed after 7 years. Chapter 7 bankruptcy (exoneration of all debt) will continue to be reported for 10 years from the filing date. Chapter 13 bankruptcy (reorganization of debt) disappears 7 years from filing date. Judgments and tax liens will stay on your credit report until paid.
8. A DIVORCE DECREE SEVERS JOINT ACCOUNTS.
A divorce does not automatically sever joint liabilities. A judge approved plan to divide debts carries no legal weight with creditors. Divorcing parties must contact the creditors and close accounts or have the party removed from the account sign a letter of consent.
9. MY INCOME IS TOO LOW FOR A HIGH SCORE.
Your income has no relevance to your credit score. Your score is calculated by the credit reporting agency solely based on the both Good and Negative data stored within the credit file. Information found in the loan application package has no impact on the score.
10. I CAN PAY SOMEONE TO FIX MY CREDIT.
The facts are the facts ! Only erroneous information can be removed from your report. Companies will charge you to generate a flood of dispute letters to the credit report agencies, which in turn ask the creditor to verify the information. The information may be temporarily removed and then put right back on 30 days later after the creditor verifies the information. Only errors supported by documentation will be removed from your credit file.
How to Get a Free Credit Report
The credit report is free if you have been refused credit, employment, or insurance within 30 days - based on a credit report from the credit bureau from which you now seek a report. In practice, the bureaus usually honor a request for a free report anytime within 60 days after credit is refused. However, credit bureaus that did not issue a report that was the basis for the denial can still charge you a credit report fee.
It is not difficult to contact the credit bureaus to obtain your credit report. You will know whom to contact if you have been denied credit, because the creditor must then send you a letter explaining why you were denied credit and the name of the credit bureau to request a credit bureau report.
Credit Repair :
How do you turn late payment marks into a positive credit rating?
Without the creditor's cooperation, negative entries cannot be deleted if the entries are accurate and the creditor cooperates with the bureau's request for verification. At that point, your goal is to persuade the creditor to either tone down or entirely delete the remarks on your credit report. Later, we will deal with the bad debts that you still owe and where you must be even more persuasive with your creditors. For now, we only want to turn those late payment marks into positive credit ratings. To do so, follow these simple steps:
- Explain the problem in writing
Write to the creditor explaining your version of how the problem arose. Be specific. Submit details and full documentation. Appeal to the creditor's sense of goodwill. Whatever the reason for the credit problems, remind the creditor that you eventually paid. Appeal to the creditor and ask him/her to either remove the bad marks now that the account is settled, or at least put in a statement that the account is paid.
Each letter you send should be consistent with the others so if the creditor's new comments do appear on your credit file they will appear reasonable and consistent. Forget weak excuses for poor bill-paying habits. Use strong, understandable reasons. Send the letter by certified mail, return receipt requested.
If the creditor won't back down, you may still question the accuracy or completeness of the entry the creditor has filed against you. It is your right to add your version of the situation to your credit file. Your comments as to why the bill was not paid on time must be submitted under any credit request. Your comments may greatly reduce the damage of a particular entry.
You may not want to comment on any one particular entry, but instead have your credit record reflect reasons for generally poor credit. For example, if you have several negative entries, was the cause a layoff from work, divorce, personal or family illness, or IRS problems?
These unfortunate situations can happen to anyone and affect an otherwise excellent credit history. Advise credit inquirers if there was one specific event that changed your good credit. Refer to your prior on-time payment history. Convince creditors that these problems are not likely to persist.
- Give the creditor 30 days to change your credit report
Creditors can remove negative marks. Give the creditor about 30 days to respond to your letter. Then, order another credit report to check if it has been changed.
- Wait for a reply
Wait the estimated time established during your first effort to initially persuade the bureau to remove the negative marks. The bureau should reply within a few weeks with a new copy of your credit report.
- Pick up the phone
If letters prove ineffective, try the telephone, which is a more personal way to interact with the creditor.
- Don't give up
The initial call may have no affect. Don't be timid or give up. Keep trying. Talk to a different person if you feel the previous contact was not helpful. Companies often have many people working in customer relations departments and each person can react differently to your request.
- Once a creditor verbally agrees to change your credit status, follow up the phone conversation with a letter confirming that agreement. Have the creditor sign the letter and return it to you. The letter is an important tool. If the creditor forgets or later refuses to change your status, you can then send the letter to the credit bureau.
How do you turn bad current debts into a positive credit rating?
Approach your creditors and negotiate repayment plans that earnestly demonstrate your ability to make regular payments. In response, your positive credit rating can be restored. Here's the strategy:
- Collection Agency Accounts - Deal with the creditor
When you deal with the creditor you usually have more flexibility to negotiate time or amount of payment. A collection agency receives a percentage of what they collect from you so they try to collect as much as they can. The creditor, on the other hand, may not expect full payment. And your future business may also be important. However, be aware that creditors can refuse to deal with customers after an account has been turned over to an attorney or collection agency.
The collection agency is usually more difficult to negotiate with. If you cannot avoid negotiating with the collection agency, the following suggestions for dealing with creditors can also be used for effectively dealing with the collection agency.
- Make an offer they can't refuse.
Suggest a payment schedule in exchange for a corrected credit entry. Or, agree to pay what you owe in 10-monthly installments if the creditor agrees to improve your credit rating. Be direct. Be specific. You could suggest that after a certain number of on-time payments, your negative rating will be raised to a non-rating, and then after several more timely payments, the non-rating will be lifted to a positive rating.
- Maintain an open account.
Ask the creditor to keep the account open while fulfilling your payment agreement. You are more persuasive if you offer to fully pay the debt with interest or an added service charge. Be certain that whatever you promise is within your budget so you can keep your word.
- Send a letter
State your verbal agreement in writing. Follow up with a certified (return receipt) letter to the creditor. You may want an attorney to review the agreement. Once the creditor signs and returns the agreement to you, it can become part of your credit record.
- Follow through on your promise
When you have a written agreement, you need only follow through and make the payments for your credit rating to be restored. Inform your creditor before you miss any payments, if your ability to pay should be threatened by an unexpected setback. Explore mutually acceptable ways to solve your temporary problem.
- Check your credit report
Verify that the creditor has made the promised changes, once the payment plan has been completed. Request your update after a reasonable time. If changes have not been made, remind the creditor of the agreement. If the creditor still refuses to make the agreed changes, you can then dispute the information on your credit report using the creditor's agreement to support the change
Credit Bureau Addresses
There are over 1000 credit bureaus in the United States. However, most creditors will request your information from one (or all) of the three largest. If you have been denied credit, have a dispute, or just want to know what's in your credit file, you would need to request a credit report from all three major credit bureaus. In addition, you would need to send a letter to all three major credit bureaus to feel certain that you have completely removed any obsolete information that may appear in any credit report a potential creditor may request. Here is the contact information for the three major credit bureaus:
Equifax
P.O. Box 105873
Atlanta, GA. 30348
(800) 685-1111 or (770) 612-3200
For Georgia, Vermont or Massachusetts (800) 548-4548
For Maryland, (800) 233-7654
Web site address: www.equifax.com
Experian (formerly TRW)
P.O. Box 2104
Allen, Texas 75013-2104
(888) 397-3742
Web site address: www.experian.com
Trans Union Corporation
Consumer Disclosure Center
P.O. Box 390
Springfield, PA. 19064-0390
(800) 916-8800
Web site address: www.tuc.com
