Credit Report Information
Free Credit Report:Higher scores usually means lower interest rates on new loans, which could save you money. Under a new Federal Law, you have the right to receive a free copy of your credit report once every 12 months from each of the three nationwide consumer reporting companies.How Your Credit Score is Calculated:A credit score is a number that lenders use to estimate risk. Experience has shown them that borrowers with higher credit scores are less likely to default on a loan. Credit scores are generated by plugging the data from your credit report into software that analyzes it and cranks out a number.
Your payment history includes: number of accounts paid as agreed, negative public records or collections, delinquent accounts including total number of past due items, how long you've been past due, and how long it's been since you had a past due payment. Also included is what you owe on accounts and the types of accounts with balances, how much of your revolving credit lines you've used, looking for indications you are over-extended, amounts you owe on installment loans accounts vs their original balances, to make sure you are paying them down consistently, and the number of zero balance accounts. Length of credit history: total length of time tracked by your credit report, length of time since accounts were opened, time that's passed since the last activity, the longer your good history, the better your scores. Types of credit: total number of accounts and types of accounts (installment, revolving, mortgage, etc.), a mixture of account types usually generates better scores than reports with only numerous revolving accounts (credit cards). Your new credit: number of accounts you've recently opened and the proportion of new accounts to total accounts, number of recent credit inquiries, the time that's passed since recent inquiries or newly-opened accounts, if you've re-established a positive credit history after encountering payment problems, and checking to make sure you aren't attempting to open numerous new accounts. Credit scoring software only considers items on your credit report. Lenders typically look at other factors that aren't included in the report, such as income, employment history, and the type of credit you are seeking.
What is a good credit score? Credit Scores usually range from 350 to 850. The higher your score, the less risk a lender believes you will be. As your credit scores climbs, the interest rate you are offered will probably decline. Borrowers with a credit score over 700 are typically offered more financing options and better interest rates, but don't be discouraged if your scores are lower, because there's a mortgage product for nearly everyone.
How to Improve Your Credit Scores:
Lenders analyze your credit scores to determine whether or not to approve a home mortgage, a car purchase and nearly all other types of loans. Before lending you money, creditors want to determine how much of a arisk you are, and how likely you are to repay the money they loan you. Credit scores help them do that, and the higher your score, the less risk they feel you'll be. Most increases to your credit scores take place over time and require an ongoing effort from you. The only true credit score quick-fixes are to pay down debt and to successfully dispute negative information on a credit report.
You can improve your credit scores by taking a close look at your credit reports and charting a plan of action to improve them. Always pay your bills on time. Late payments play a major role in driving down your score. If you have past-due bills now, get current and stay that way. Contact your creditors as soon as you know you will have a problem paying bills on time. Try to work out a payment arrangement and negotiate with them to keep at least a portion of the late notations off of your credit reports. Keep your credit card balances low. High debt-to-credit limit ratios drive your scores down. Pay off debt, don't move it around. Owing the same amounts, but having fewer open accounts, can lower your score if you max out the accounts involved. Don't close unused accounts, because zero balance might help your score. Don't open new accounts that you don't need as a quickie approach to altering your debt-to-credit-limit ratios. That can lower your score.
Time is the only thing that can improve your scores, but you can manage it wisely; don't open several new accounts in a short period, especially if your credit history is less than three years. Adding accounts too rapidly sends up a red flag that you might not be able to handle your credit responsibly. Manage new credit wisely. Several credit inquiries during a short period means you are attempting to open multiple new accounts, and that lowers your credit scores. Credit scoring software usually recognizes when you are shopping for a single loan with a short period of time, such as a home loan. If multiple inquires are necessary, have them pulled as closely together as possible. Checking your own credit report does not affect your scores. Do tryto open a few new accounts if you've had credit problems in the past. Pay them on time and don't max out your credit limits. A mixture of credit cards and installment loans, loans with fixed payments, can help raise your score if you manage the credit cards responsibly. Having many installment loans can lower your scores since payments remain the same until balances are paid in full. Don't open new accounts just to have several accounts or to attempt a better mix of credit. Closing an account doesn't remove it from your report. It may still be considered for scoring purposes.
Buying a Home with Bad Credit:Just because you have bad credit, filed bankruptcy, or gone through a foreclosure does not mean you cannot buy a home. You most certainly can buy a home with bad credit. But you're going to pay more than a borrower who has sparkling credit. There is a waiting period after foreclosure/bankruptcy. The period between bankruptcy filings is seven years, but the ding to your credit report stays for 10 years. For better rates with a conforming loan, the wait is five years after bankruptcy has been discharged. FHA guidelines are three years after a foreclosure, which means you could qualify for as little as 3% down.One way to improve your qualification for a home loan is to obtain a major credit card. It's easier to get than you would think after a bankruptcy, for three reasons; a bankruptcy filing gives you a fresh start, the lender knows you have no debt, you can't file bankruptcy again for another seven years. Show steady employment on the job for one to two years; earn a regular salary or wage, this does not apply to self-employment. Save a down payment of at least 10% and avoid late payments and continue to pay your bills on time, do not fall behind. |
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The three major credit reporting agencies don't necessarily use the same scoring software, so don't be surprised if you discover that the credit scores they generate for you are different. The software used to calculate a great number of credit scores was created by Fair Isaac Corporation, FICO. The following percentages are an approximate value that each aspect of your credit report adds to a credit score calculation; 35% your payment history, 30% amount you owe, 15% length of your credit history, 10% types of credit used, 10% new credit.
