Understanding Your Credit Score

How Your Credit Score is Derived?

Developed in 1956, a Fair Isaac Corporation Score (commonly called the FICO Score) is a three digit number ranging from 300-850 and is calculated according to the following risk factors:

Payment History (35% of score)

• Payment information on many types of accounts
• Public record and collection items
• Details on late or missed payments -- specifically:
  • how late they were
  • how much was owed
  • how recently they occurred
  • how many there are

Amounts Owed (30% of score)

• Amount owed on all accounts
• Amount owed on different types of accounts
• Whether you are showing a balance on certain types of accounts
• How much of the total credit line is being used
• How much of installment loan accounts is still owed

Length of Credit History (15% of score)

• How long your credit accounts have been established, in general
• How long specific credit accounts have been established
• How long it has been since you used certain accounts

New Credit & Inquiries (10% of score)

• What kinds of credit accounts you have and how many of each
• Total number of accounts you have

Types of Credit (10% of score)

• How many new accounts you have
• How long it has been since you opened a new account
• How many recent requests for credit you have made

What It Means

Credit scores usually range from 300 to 850. A score in the mid-600 range is typically considered acceptable; a borrower with a higher rate is considered good to excellent credit. Borrowers with good or excellent credit can receive lower interest rates and better terms. Scores below 600 would be considered high risk, which could result in higher interest rates and less favorable terms.

Fixing Credit Report Errors

Under the Fair Credit Reporting Act, you have the right to dispute the accuracy and comprehensiveness of information in your credit file. Unless the credit reporting agency believes a dispute to be "frivolous or irrelevant," it must reinvestigate and record the current status of the disputed items within a "reasonable period of time." A disputed item must be deleted if the credit reporting agency cannot verify it. In addition, the credit reporting agency must correct any erroneous information in the report. Any incomplete item must be completed by the credit reporting agency as well.

In the instance that your file indicates that you were behind on making payments for a period of time, but neglects to record that you currently are on time with payments, the current agency must confirm you are now current with these payments. The credit reporting agency also will have to delete any file shown to belong to another person. Any institution who has checked your file in the past 6 months must receive a notice of correction from the credit reporting agency if you request it.

When you feel there are items in your credit profile that deserve further explanation (such as an account that was paid late due to the loss of job, military call-up, or unexpected medical bills), you send a brief statement to the appropriate credit reporting agency. The information will be placed in your credit profile and will be disclosed each time it is accessed.

Fair Isaac Resolution Resources Helpline (800) 777-2066

Keep Your Credit Clean

Credit Cleaning Tips

• Review your credit report line-by-line, specifically search for errors, omissions, duplications, and common name errors.
• If you encounter errors, write out exactly what should be corrected and why. You are able to add 100 words or less to your reports on questioned items.
• You can find assistance through credit counselors which are available through the various credit bureaus.
• Federal law requires credit bureaus to contact all creditors on items where mistakes were made. According to the Fair Credit Reporting Act of 1971, if these firms fail to respond to you in writing within 30 days, they are then obligated to remove the disputed items from your records.
• Most merchants are willing to negotiate customized repayment plans for those that find themselves with considerable debt.
• Chapter 13 bankruptcies stay on an individual's record for 7 years. Chapter 7 bankruptcies stay on an individual's record for 10 years.

Judgments, Garnishments, or Liens

Liens, garnishments and judgments can be indicators of an unstable borrower. Any judgments, garnishments or liens must be paid in full. Prior to closing, proof that the judgment, garnishment or lien has been cleared must be obtained. This can be reflected through a clear credit report supplement or a paid receipt form from the creditor. IRS tax liens also must be paid in full. Standard property tax liens do not have to be recorded as paid in full since they are not yet due or payable. Also, the borrower is obligated to provide your lender with receipt showing anything outstanding was paid off, or a satisfactory letter of explanation describing why they might still be outstanding.

Delinquent Child Support

Child support payments must be brought current, and specific documentation from the credit reporting agency demonstrating this fact must be in the file with NO EXCEPTIONS! Due to the the seriousness of the delinquency/default, which in many states can result in jail time, only a letter from the court or the legal authority responsible for collection in the city/state (e.g. district attorney, sheriff, etc.) is acceptable. A letter from an ex-spouse, or copies of personal checks are not acceptable. Neither is an agreed upon, but not yet completed, payment plan.

Credit Bureaus

There are a good number of reporting agencies that can provide you your credit score. Three of the leading services for this are:

• Experian
  http://www.experian.com
  1-888-397-3742
• Equifax
  http://www.equifax.com
  1-800-685-1111
• Transunion
  http://www.transunion.com
  1-800-888-4213

Don't forget that if you have any questions or concerns, you can always contact me.