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UNDERSTANDING YOUR CREDIT REPORT

Updated:         June 3, 2018

With the increased emphasis on credit scoring (see Credit Scoring tip sheet) 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 $35 and $55 (for single or couple report) but, if you are entering into a home purchase agreement, your selected lender will likely secure a credit report as a part of your loan submission. When initiating the qualification process, it is often suggested that the would-be borrower acquire their own report, at which time your selected lender can then assist in interpreting your credit report and make recommendations, if necessary, regarding how to improve the record and scores.

The following sites offer “free” credit reports. In all cases, the programs will attempt to “sell” you additional information, credit protection, etc. You need not acquire anything other than the free report. There is typically a variance between the scores obtained via these free reports and he FICO score ultimately obtained for loan submission. The free report provides “an idea” of the current score and may provide insight into reasons why the score is at its present level.

annualcreditreport.com

creditkarma.com

quizzle.com

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.  (Note: A recent change in qualifying guidelines requires that all “disputes” be settled and removed from the credit report prior to loan approval) 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 provision in the federal Fair Credit Reporting Act (FCRA) announced in April 2004 was a good first step in trying to make the system accountable. The Federal Trade Commission (FTC) announced a 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/

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. Be aware, however, that there are also negative consequences hat can accompany this effort. There is no guarantee that credit scores will automatically increase via the rapid score process.

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 some 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. This latter situation is more prevalent with the less traditional types of credit.

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. More often, your lender will offer suggestions based upon already known aspects that affect credit both positively and negatively.

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