Understanding Your Credit Reports
Your credit is a crucial part of the lender’s decision on whether you get approved for a mortgage or not. Your credit score will also determine the rates and point structure the lender will offer you. Before we get started, go ahead and print this tip so you have it for future reference…
You may think your credit situation is hopeless. Just remember that there is always the chance to improve it, even under the most challenging of circumstances. I have helped many people get into homes even when their banks originally said no.
If you think you have perfect credit, this lesson will still be of value since there is a real possibility that your report contains mistakes you are unaware even existed.
Credit reporting agencies, or credit bureaus, collect information about consumers’ financial affairs and sell that information to their business members, such as credit grantors, employers, and insurance companies. The credit bureaus normally charge annual fees as well as a fee for each credit report requested by members.
The first step in the process is to get a copy of your credit report.
The Three Credit Reporting Agencies In The USA
Equifax, Experian, and TransUnion.
However, not every creditor reports to every credit bureau. For example, Visa may report to Equifax while your credit union reports to TransUnion and your auto loan company reports to all 3 bureaus.
Credit bureaus obtain their information from three major sources:
1. Consumers supply information, primarily from filling out application forms for credit.
2. Public records provide information on such matters as bankruptcies, court judgments, foreclosures, and agreements registered.
3. The major credit grantors and collection agencies regularly send their credit files electronically to the credit bureaus, resulting in files that include the account number, outstanding balance, and a nine-point scale indicating whether a payment was made on time or not.
You must first know how to read your credit report. The grid below will show you what the letters and numbers on your credit report mean. Most credit reports use the same codes to report information. Knowing what the codes mean can help you interpret your credit report.
Type of Account
O = 30-, 60-, or 90-day account
R = Revolving open-end account
I = Installment and/or mortgage account
0 = Too new to rate: Approved but not used
1 = Pays (or paid) within 30 days of billing; pays account as agreed
2 = Pays (or paid) in more than 30 days, but not more than 60 days
3 = Pays (or paid) in more than 60 days, but not more than 90 days
4 = Pays (or paid) in more than 90 days, but not more than 120 days, or three or more payments overdue
5 = Account is at least 120 days overdue, but not yet rated 9
7 = Making regular payments under wage earner plan of bankruptcy act or similar arrangement
8 = Foreclosure or repossession
9 = Bad debt; placed for collection; suit judgement; skip
0 0 0
$ $ $
30 60 90
How many times payments are 30, 60, or 90 days late.
If you have had a bankruptcy or other credit issue there is a strong possibility that your credit report is incorrect. Many bills that were included in your bankruptcy, or bills you paid in the past, may still be showing up as past due. Often you may find collections on your report from medical bills you thought were paid by your insurance company. The good news is that you should be able to correct these issues with a few documents and letters.
Correcting Errors on Your Credit Report
Make sure the following information is correct: Your name; or names if you are or were married; Social security number; Date of birth; addresses of places you’ve lived; names of places you’ve worked; pending accounts and accounts that have been closed.
Ensure that nothing has been on the report longer than is allowed by law:
*Bankruptcies must be taken off your credit history after 10 years;
*Suits and judgments, tax liens, arrest records, and most other kinds of unfavorable information must be dropped after 7 years.
Any error that you find must be investigated by the credit bureau with the creditor who supplied the data. The bureau will remove from your credit report any errors a creditor admits are there. If you disagree with the findings, you can file a short statement in your record giving your side of the story. Future reports to creditors must include this statement or a summary of it.
The Fair Credit Billing Act requires creditors to correct errors promptly and without damage to your credit rating. The law defines a billing error as any charge for something you didn’t buy or for a purchase made by someone not authorized to use your account; for something that is not properly identified on your bill, or is for an amount different from the actual purchase price, or was entered on a date different from the purchase date; for something that you did not accept on delivery or that was not delivered according to agreement.
Billing errors also include errors in arithmetic; failure to show a payment or other credit to your account; failure to mail the bill to your current address, if you told the creditor about an address change at least 20 days before the end of the billing period; questionable items, or any item for which you need more information.
Once you have written about a possible error, a creditor must not give out information to other creditors or credit bureaus that would hurt your credit reputation until the matter is resolved. Until your complaint is answered, the creditor may not take any action to collect the disputed amount.
As of December 1, 2004 the Fair Credit Reporting Act allows you to get one free comprehensive disclosure of all of the information in your credit file from each of the three major credit bureaus once per year.
In the next blog article, I will be covering if a down payment is really needed.
If you would like to get started now with your home loan, please click Apply Now to fill out a Secure Online Application and we will contact you to set up your free consultation and get you into the home of your dreams with the best terms available…regardless of your credit!