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Review Your Credit Report

Review Your Credit Report

Check Your Credit Score When Preparing to Apply for a Mortgage

When applying for a substantial amount of money such as a mortgage, the first step anyone should take should be to make sure all your credit scores are the highest they can be.

Your credit report is primarily based on your trade-line and payment history, debt levels, and other information gathered by the three credit bureaus (Experian, Equifax and TransUnion). From that they calculate your credit score and assign a number between 300 and 850. 850 is the best.

Lenders use that score to determine whether to accept a loan application and the rate they will charge. That’s why it’s important to make sure your information is correct. You’re entitled to a free credit report once a year from each of the three credit bureaus.

Breakdown of Credit Scores and What They May Mean to You

700+ Credit Score – Excellent

A credit score over 700 means excellent or very good credit. Basically, the higher the score the lower your rate because you’re considered less risk to the lender. Your credit is or near flawless!

680 – 699 Credit Score – Good
A score in this range means good credit. You should be able to qualify for most loans but you may be paying a slighter higher rate than those offered to borrowers with excellent credit. You may benefit from a professional credit analysis.

620 – 679 Credit Score – Fair
Although a credit score in this range is still considered okay by many lenders, you may not get approved as easily as a borrower with a higher score. You probably won’t qualify for the best rates either. Your credit may benefit from credit repair.

580 – 619 Credit Score – Poor
Scores in this range are below average (subprime) and you’ll have a tough time getting a loan or even a credit card. If you score in this range you should work to improve your credit score because you’ll be paying higher interest rates just to get credit approval. Your credit is in need of repair.

500 – 579 Credit Score – Damaged
A credit score in this range usually means you’ve had a collection, charge-off, a foreclosure or a bankruptcy. Your credit is in need of repair.

Why You Don’t Need to Pay for Your Credit Score (Part I)

Why You Don’t Need to Pay for Your Credit Score (Part I)

Maybe you’ve seen some of the news reports, such as the one broadcast by KUTV in Salt Lake City, Utah, about companies “scamming” people with regard to their credit scores.

According to the February 4, 2014 KUTV news report, consumers have been complaining that they’ve paid for their credit score, but when they go to buy a house or a car, they learn the score they have doesn’t match the score used by the lender.

Consumers have filed complaints because they’re being denied loans or being charged higher rates.

In Part I of this two-part post, you’ll learn some basic facts behind FreeCreditReport.com – a site that offers credit reports and credit scores – and why the site is a little misleading. In Part Two, you’ll learn why lenders view credit scores from these sites as meaningless.

How FreeCreditReport.com works

Owned by Experian, FreeCreditReport.com offers consumers a way to get their credit reports and credit scores.

When you arrive at the site’s home page, you’re offered two options: You can get your free credit report by filling out a form, or you can purchase your credit report and credit score for $1.00.

Don’t ignore that disclaimer!

If you go straight to these two options, which most people would do since the calls-to-action are so prominent, you completely miss the disclaimer at the top of the page.

The disclaimer explains that when you purchase the $1.00 option, you’re signing up for a membership. If you don’t cancel your membership within seven days, you’ll then be charged $12.99 a month – indefinitely!

You shouldn’t be paying for credit reports

Interestingly enough, the disclaimer includes a link to annualcreditreport.com – a website authorized by the new Consumer Financial Protection Bureau as being the “official” website from which to order your free credit reports.

To be clear, as a consumer you are guaranteed access to a free copy of your credit report, from each of the reporting bureaus, once a year.

You can obtain your three free reports every 12 months (say every January or June) or you can request a report from a bureau once every four months – like this:

  • Experian in January
  • Equifax in June
  • TransUnion in September

This type of schedule ensures you’re constantly monitoring your credit.

You also get a free copy of your credit report when you apply for a mortgage. Lenders are required to send you copies of your credit reports. Your lender will usually tell you your credit score, too. If your lender doesn’t – ask. Your credit score isn’t confidential information.

(Be sure to see our post on how to determine what your credit score means.)

Stay far away from sites like this

Speaking as a mortgage broker, I recommend that you stay far away from freecreditreport.com and other sites like it. The marketplace is full of noise about identity theft and mistrusting mortgage lenders.

Sites like freecreditreport.com are fanning the flames of fear to generate additional profits for the credit bureaus backing them.

In Part Two of this post, you’ll learn the difference between the various types of credit scores and why lenders only rely on the scores of reports they’ve pulled themselves.

In the meantime, if you’re in the market for a home loan or have been considering a refi, give us a call. We’re here for you.

Credit Report vs. Credit Score: What’s the Difference?

Credit Report vs. Credit Score: What’s the Difference?

Before you start looking for a home to buy, you need to get your credit in order. In the process, you’re sure to come across the terms “credit report” and “credit score.” While some people use the terms interchangeably, they are, in fact, two different things.

A credit report is a record of your credit history. It contains information about your existing credit (such as credit card accounts, mortgages, and loans), including how much you owe and your payment history. It also contains information about any court judgments, tax liens, and bankruptcy filings.

Your credit score is a number that is meant to encapsulate the information in your credit report. It reflects the risk a company incurs by extending credit to you. The higher the score, the lower the risk.

Lenders typically use your credit score in combination with your credit report to decide whether or not to grant you credit and what terms and interest rates to offer you. You can find a detailed discussion of credit reports and credit scores in the Federal Reserve’s Consumer’s Guide.

What’s on your credit report?

By law, you can request a free copy of your credit report every 12 months. Consumer Reports warns that some companies may charge for this service, so they suggest requesting a copy from AnnualCreditReport.com. The three big consumer credit bureaus (Equifax, Experian, TransUnion) maintain this site in order to comply with the Fair and Accurate Credit Transactions Act.

Unfortunately, there’s no law stating that credit reporting companies must provide you with your credit score for free. However, you might be able to learn your credit score when applying for a loan. Your lender will learn your credit score as part of the loan application process and may share it with you. Otherwise, you can purchase your credit score from any of the big three credit bureaus.

“Hard pulls” will NOT lower your credit score

One myth that hurts consumers shopping for mortgages is that pulling credit reports hurts your credit score. According to MyFico.com, credit scores aren’t reduced by multiple inquiries within a short period of time.

In fact, a few years ago lawmakers forced the credit bureaus to reformulate their score calculations in order to allow consumers to shop around for various financing and not be penalized for it.

If, while you’re shopping for a mortgage, a lender tells you not to let anyone (other than the lender himself) pull your credit because your score will drop, consider removing this lender from your short list. Obviously, having other lenders pull your report will not hurt your score. By perpetuating this myth, the lender is scaring you into not allowing other lenders to pull your credit – which pretty much means you’ll go with him (or her).

Key takeaway: Shop lenders for the best rates

As a mortgage broker, we advise our customers that five mortgage inquiries within a 30-day period are viewed by the credit bureaus as one single inquiry and adjusted accordingly. (For additional information from “the source,” see this LA Times interview of Frederic Huynh, a Senior Scientist at FICO, on key rules regarding credit scores.)

Naturally, if you want to get your loan approved or get better terms and interest rates, you’ll need a good credit score. For tips on getting a higher credit score, see our blog post, How to Improve Your Credit Score. You can also watch our short video:

If you’re planning on buying a home and have questions about your credit report or credit score, give us a call. We’re always happy to help.

FAQs

Review Your Credit Report

Review Your Credit Report

Check Your Credit Score When Preparing to Apply for a Mortgage

When applying for a substantial amount of money such as a mortgage, the first step anyone should take should be to make sure all your credit scores are the highest they can be.

Your credit report is primarily based on your trade-line and payment history, debt levels, and other information gathered by the three credit bureaus (Experian, Equifax and TransUnion). From that they calculate your credit score and assign a number between 300 and 850. 850 is the best.

Lenders use that score to determine whether to accept a loan application and the rate they will charge. That’s why it’s important to make sure your information is correct. You’re entitled to a free credit report once a year from each of the three credit bureaus.

Breakdown of Credit Scores and What They May Mean to You

700+ Credit Score – Excellent

A credit score over 700 means excellent or very good credit. Basically, the higher the score the lower your rate because you’re considered less risk to the lender. Your credit is or near flawless!

680 – 699 Credit Score – Good

A score in this range means good credit. You should be able to qualify for most loans but you may be paying a slighter higher rate than those offered to borrowers with excellent credit. You may benefit from a professional credit analysis.

620 – 679 Credit Score – Fair

Although a credit score in this range is still considered okay by many lenders, you may not get approved as easily as a borrower with a higher score. You probably won’t qualify for the best rates either. Your credit may benefit from credit repair.

580 – 619 Credit Score – Poor

Scores in this range are below average (subprime) and you’ll have a tough time getting a loan or even a credit card. If you score in this range you should work to improve your credit score because you’ll be paying higher interest rates just to get credit approval. Your credit is in need of repair.

500 – 579 Credit Score – Damaged

A credit score in this range usually means you’ve had a collection, charge-off, a foreclosure or a bankruptcy. Your credit is in need of repair.