Finance

What You Don’t Know About Credit Reports

When a lender “runs your credit,” that means the bank taps into one of three independent national credit reporting bureaus — TransUnion, Experian, and Equifax. Credit reporting bureaus collect information about your credit card use, rental history from landlords, and your loan history, including vehicle and student loans. The bureaus then analyze the results and tabulate them into credit scores, using software created by the Fair Isaac Corporation. Your lender can purchase the reports as well as the FICO scores to serve as summaries of your credit history.

Each credit reporting bureau collects and analyzes its own data which results in different scores. The bureaus don’t share information, so if you want a true picture of your credit, you have to check all three bureaus. If you have a mistake or a ding on your credit report from one bureau, the same problem may not appear on the other bureaus’ reports. You have to get the negative item removed by sending a copy of your proof — payment in full or release of lien, or other evidence.

Getting the item removed can take as long as thirty days, which will delay your loan. That’s why it’s best to clear these things up before the lender brings them to your attention. If your lender sees something negative enough to decline the loan, they will tell you to fix it. For example, you may have had a dispute with a contractor that resulted in a lien on your home. It doesn’t matter whether you had right on your side, you’ll have to pay the debtor, obtain a release of lien or payment in full receipt, or whichever is appropriate.

This proof should go into the loan file. You should also keep multiple copies of the lien release or payment in full. Why? Because the lien can reappear on another credit report. IRS property liens are particularly hard to eradicate because the proof of payment has to come from the IRS plus the county where you owned the property must record the release of lien.

You may see a problem in your credit report that’s over a decade old. An account in collections can stay on your credit report for much longer than seven years plus the length of time it takes for bad accounts to drop off your credit record. When the debtor gives up trying to collect, that’s when the seven years begin. FICO credit scores range from 300 to 850. To get the best mortgage rate, your score must be as close to 850 as possible. Most lenders will give you their best rates if your credit scores are 750 or higher.

You can raise your credit scores by managing your credit the way that generates the highest scores. About one-third of your FICO score is your payment history. Another third of your score is based on how much of your available credit you use. You can improve both areas by paying down your debt as quickly as you can. If you are only making the minimum payment on your accounts, you’re living beyond your means. Don’t max out any credit card, particularly unsecured debt like store credit cards.

You can also improve your scores if you pay debts off early and avoid late payments. Data includes the loan terms, payment history — on time, early or late payments, monthly balance rollovers, payment amounts, minimum payment history, income-to-debt ratios, and percentage use of available credit. Pay off the credit cards that charge the highest interest first. Don’t incur new debt.

Managing your debts well does more than earn you a great mortgage rate. It ensures that you are more likely to buy wisely and within your means. And that should make any lender view you as a good risk.
You’re entitled to a free copy of your credit reports. You can contact all three credit bureaus or visit AnnualCreditReport.com.