UNDERSTANDING YOUR CREDIT REPORT
With the increased emphasis on credit scoring (see Credit Scoring) it is
important to understand what is involved in an individual's credit history. The
following represent some of the most frequently asked questions.
What kind of information does my file contain? Personal data
such as name, address, social security number and employment for you (and a
spouse, if married). Credit lines including bank loans, credit cards,
department store charge accounts, finance company loans, gasoline credit card
accounts as well as mortgage accounts. Collection accounts, including those
that have been paid. Legal items such as judgments, tax
liens, foreclosures and bankruptcies.
How does the lender evaluate the credit history? Stability is the key word
for lenders when reviewing credit history, particularly employment and payment
history. For some loan options, a lender may require sufficient credit history
. . . Meaning that the borrower must have a given number of credit lines. This
latter requirement is typically to prove that the borrower can
"manage" their credit usage. Obviously, a lender also prefers income
stability.
How can I find out what is contained in my credit file? You can contact the local credit
bureau and for a small fee you can obtain a copy of your credit report. Your
request will probably have to be in writing. Unfortunately, the report you
receive is likely to represent only one credit repository (out of a total of
three repositories) and will almost certainly not contain a credit score.
A more recent development is web sites that allow a consumer to seek their
credit report. The results are a bit mixed at this time but it does offer
another avenue for consumers seeking information. The web programs were made
possible via legislation permitting consumers to acquire credit information,
including their credit scores from all three credit repositories. In the
meantime, consumers contemplating a home purchase can usually obtain a
"preview" report, including information and credit scores from the
three repositories, via their selected mortgage lender. The cost for this
preview report can be well worth the modest investment between $15 and $18 but,
if you are entering into a home purchase agreement, your selected lender will
likely secure a credit report at no cost to the borrower. If you acqauire your own report, your selected lender can assist
in interpreting your credit report and make recommendations, if necessary,
regarding how to improve the record and scores.
Why do I need to access all three major credit repositories? Various creditors may choose to
report to only one or two of the repositories rather than all three. One can
guarantee "all" of the reported credit history only by accessing all
three repositories and comparing the information.
What if I find information I believe to be incorrect? In some circumstances the
credit bureau will re-verify any data you feel is in error. If you are unsure
if the information is erroneous, the report provides addresses and phone
numbers for the creditors allowing you to contact them directly to clarify
reported information.
You may "dispute" a delinquency reported by a creditor. If the creditor does not respond within a reasonable period of time
(typically 30 days), the item in question can be deleted from the credit file.
It is important to note that sometimes a delinquent item is deleted because a
creditor delays their response, only to find that the creditor responds later
resulting in the delinquent item being reinstated in the credit report. You are
allowed under all circumstances to add a consumer statement of 100 words or
less to your file related to any specific delinquent item.
If the information is determined to be inaccurate, your credit score will
ultimately change. One of the criticisms of today's credit score system is the
often times delay in having the consumer's score revised. A new provision in
the federal Fair Credit Reporting Act (FCRA) announced in April 2004 is a good
first step in trying to make the system accountable. The Federal Trade
Commission (FTC) announced a new protocol for dealing with complaints regarding
report disputes about accuracy or completeness not having been resolved to
their satisfaction. The process requires that the three credit reporting
repositories report back to the FTC as to their findings regarding a consumer
complaint. While a good first effort, in retrospect, this process has proven
less than effective in providing help to consumers. For more information, check
the FTC website at www.ftc.gov/bcp/conline/pubs/credit/fcra
A more recent process has been the introduction of a “rapid
rescore” ability following the correction of credit errors. While this
can be costly, it has proven effective in those situations that simply can not
wait the time period for credit scores to be adjusted more normally.
How long does adverse information remain on file? Most adverse information will
generally remain on record for seven years, although a creditor can choose to
remove a delinquent item prior to the seven year maximum. An
exception to the rule are bankruptcies which usually remain for ten
years.
How frequently do creditors update information to the credit
repositories? While
this depends upon the individual creditor, the general rule is that updates are
recorded every 30 to 60 days for active accounts. As indicated above, the
credit scoring system is under considerable criticism for what is considered by
many to be long delays in adjusting credit scores. Another concern, of almost
scandalous proportions, are those creditors who choose
not to report positive information that would be helpful to a consumer's score.
What steps can I take to improve my credit profile or to make certain
that I retain the best possible profile? Obviously the most critical
thing to do is pay all bills on time. Two prominent misconceptions for
consumers include:
-one can not "make up" for a missed payment one month by sending two
monthly payments the next month.
-partial payments will not prevent adverse ratings.
Make sure that all the creditors to whom you are making timely payments are
reporting to all the credit repositories. If you discover that they are not,
ask that they report your good account status.
It is advised that before seeking a mortgage loan you determine your credit
situation in advance. This will allow you to take care of any problems and/or
discrepancies that appear in your credit file. You will be well served to avoid
surprises when making an application for a mortgage loan. Your selected lender
will be able to access a program that will provide you guidance as to what you
can do to improve your credit score and give you an idea regarding the amount
of improvement to be obtained via your efforts. There may be a slight charge
for the report but developing a blueprint of how to improve your credit score
could be well worth the investment.
Always retain copies of reports, letters or other written correspondence
with creditors and/or credit repositories. Retain notes regarding any phone
conversations, including the name of persons with whom you speak and the date
and time of conversations.
Finally, remember that your credit report is a reflection of the way you
handle credit responsibilities. Lenders will not be receptive to either excuses
for late payments or the "promise" to do better in the future.
Lenders will require you to "prove" you ability to handle credit via
a demonstration of on time payments for a minimum of a twelve month period of
time.
You are invited to call Humboldt Home Loans regarding specific questions
regarding credit reporting, credit scoring or any other aspects of the credit
system.
Web Page/Credit Report Understanding