What You Need to Know About Credit Scores

What You Need to Know About Credit Scores

 

Start with this Video by Davide Peo. Davide has a great series of videos so you may want to watch some others as well.

My Frequently Asked Questions allow you to drill down deeper to find answers to specific questions you may have in mind.   

 

 

 

[faq title=”Answers to Questions about Credit Scores”]

[faq_question]What is a Credit Score?[/faq_question][faq_answer]A score is a “snapshot” of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for more favorable interest rates.[/faq_answer]

[faq_question]How can I improve my credit score?[/faq_question][faq_answer]

Pay down (NOT OFF) your credit balances.

Plan a credit strategy much like you would a budget to improve your credit worthiness. Don’t pay off or close your accounts, you will do far better by reducing the balance. For example if your credit limit is $10,000 and you decrease your balance to 50% or $5,000 in will boost your credit score, a reduction to 30% or $3,000 will result in a huge boost to your credit rating.

Look for erroneous credit reporting errors. The Fair Credit Reporting Act ensures your right to dispute such inaccuracies in your credit report without charge.

Establish a waiting period. It takes time for your changes to be reflected in your credit history. There is no definite answer, as the time varies depending on the initial credit status of each report,  on average it takes between 30-90 days.[/faq_answer]

[faq_question]What if there is inaccurate information in my credit report?[/faq_question][faq_answer]The law guarantees your right to dispute inaccurate information on your credit report free of charge. If you find an error in your credit report, simply call or write to the credit bureau. The bureau will check with the source of the information and send you an update. The dispute process can take up to 30 days. If you still disagree with the information, you can add your own statement to the credit report.[/faq_answer]

[faq_question]Will my score determine whether or not I get credit?[/faq_question][faq_answer]

Lenders use a number of facts to make credit decisions, including your credit score. Lenders also use information such as the amount of debt you can reasonably handle given your income, your employment history and your credit history. Based on the lenders perception of all this information lenders may extend credit to you although your score is low.[/faq_answer]

[faq_question]What is the Minimum Credit Score to Buy A Home?[/faq_question][faq_answer] Prior to 2008, getting a mortgage was based on Repayment Risk, and the decision way baed on will the customer repay the loan. Emphasis was placed on credit history and approval could include more common sense decisions. Since 2008 it is all about Repurchase Riskand decisions are based on “Will the Investor Purchase the Loan?” Because of this more emphasis is placed on documentation and decisions are more rule based. 

Investors are looking to purchase conventional loans with a 680 fico score. Government loans (FHA and VA) state there is no minimum score required to apply for a loan but FHA only insures loans, they do not purchase them. Wall Street investors are buying these loans when the homebuyer has a fico score of 620 and above.[/faq_answer]

[faq_question]Will my score drop if I apply for new credit?[/faq_question][faq_answer]If it does, it won’t drop much. If you apply for several credit cards within a short period there will be multiple requests for your credit information (called inquiries) that will appear on your credit report. In fact more open credit can equate to a higher risk.[/faq_answer]

[faq_question]Will rate shopping will hurt my credit?[/faq_question][faq_answer]

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you’re only looking for one loan. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry. You score ignores all mortgage and auto loan inquiries made in the 30 days prior to scoring.[/faq_answer]

[faq_question]How long do negative items remain on my credit report?[/faq_question][faq_answer]

Late or negative information generally can be reported for seven years, but there are exceptions:

Bankruptcy information can be reported for 10 years.
Information reported because of an application for a job with a salary of more than $20,000 has no time limitation.
Information reported because of an application for more than $50,000 worth of credit or life insurance has no time limitation.
A lawsuit or a judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer; and default information concerning U.S. Government insured or guaranteed student loans can be reported for seven years after certain guarantor actions.
Tax liens stay on your credit report for 7 years from the date PAID

Credit reporting agencies still keep the distressed sale (Short Sale of Foreclosure) on record for typically 7 years, but a diligent person can correct for the score impact in about 2 to 3 years.[/faq_answer]

[faq_question]How is a Short Sale Seller’s Credit Affected?[/faq_question][faq_answer]

Fair Isaac released a report that says credit scores are affected about the same, whether a seller does a short sale or foreclosure. Fair Issac says the average points lost on a FICO score are as follows:

  • 30 days late: 40 to 110 points
  • 90 days late: 70 to 135 points
  • Foreclosure, short sale or deed-in-lieu: 85 to 160
  • Bankruptcy: 130 to 240
  • Foreclosure or Deed-in-Lieu of Foreclosure
    Both of these solutions affect credit the same, says David Steep of Vitek Mortgage. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller’s FICO score before foreclosure was 680, it could dip as low as 380.
  • Short Sale
    Steep maintains that the effect of a short sale (providing the sellers are more than 59 days late) on a seller’s credit report is identical to that of a foreclosure. The ding on credit will show up as a pre-foreclosure in redemption status, Steep says, which will result in a loss of 200 to 300 points. This means a short sale seller with a previous FICO of 720 could see it fall from 520 to 420.

Credit reporting agencies still keep the distressed sale on record for typically 7 years, but a diligent person can correct for the score impact in about 2 to 3 years.[/faq_answer]

[faq_question]Is it legal to repair your credit and have items removed?[/faq_question][faq_answer]

The Fair Credit Reporting Act of 1971 as updated in 1997 gave consumers the right to have an item repaired or removed that was inaccurate, obsolete or unverifiable.[/faq_answer]

[faq_question]Am I responsible for the bills identity thieves run up in my name?[/faq_question][faq_answer]

Federal credit fraud law protects you here. Credit card and other companies that wrongly extend credit in your name must obtain the money from the identity thief, or eat the losses, minus $50 they could ask from you. (Many creditors never ask for that $50.) But your identity theft could cost you in other ways. You will spend time and money fixing your credit record and convincing creditors that you have been wronged.[/faq_answer]

[faq_question]How can I learn more about credit and the law?[/faq_question][faq_answer]

The federal government maintains several informative World Wide Web sites with lots of information about consumer credit issues. These two relate to the FCRA specifically:

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