Credit Reports - Credit Score- How to Read and correct.

How to read a mortgage credit report.  Information on how to Improve a credit report and credit rating or score.

For more information, please contact us at (610) 326-2099. 

Credit Reporting and scoring – History and Tips:
Your ability to manage credit is an important factor in determining if you will repay your mortgage loan. How does the lender decide if you are a good credit risk? During the loan application process, the lender will obtain a credit report on you and any co-borrowers. Credit reports are provided by credit reporting companies/credit bureaus. They provide information about how you have managed debt, including:

    · How much and what types of credit you use, such as credit cards, auto 
        loans, or other consumer loans;
    · How long you have had and used credit; and
    · How promptly you pay your bills.

The three major sources of credit information about consumers are Equifax, 
Trans Union, and Experian. Lenders will obtain your credit record from all three 
of these credit bureaus. The lender will evaluate this information to determine 
whether or not you are likely to repay the mortgage loan in a timely fashion.

Before you apply for a mortgage loan, you should obtain a copy of your credit 
report to see if the information in it is complete and accurate ( to obtain a free copy 
of your credit report, or see our links to all 3 bureaus). Checking your 
credit report as early as possible will help you make sure the lender is getting
information that is accurate and up to date.

How does the mortgage lender evaluate the information in the credit report? 
One way is through credit scoring.

What is a credit score? A credit bureau score, is one of many pieces of 
information that the lender will use when evaluating a mortgage loan application. 
A credit score is a summary of a borrower's credit report and a numerical 
measurement that reflects a borrower's management of credit. Your credit 
score is based on the records compiled by credit bureaus and includes the 
information reported each month by your creditors, such as the amount of 
existing credit you have and your payment history. A credit score considers all 
of the information in the credit report and converts this information into a 
number that helps the lender determine the likelihood that you will repay your 
loan on time.  200 is the lowest possible score, 900 is the highest.  680 to 700 
is considered excellent, and less than 620 is typically considered sub-prime, 
though if there are errors on the report, this would be considered. 

Credit scoring is an objective process, based only on the infor­mation in your 
credit report. Factors such as age, race, religion, gender, national origin, marital
status, your income, employment, and where you live are not considered in 
determining your credit score.

Is credit scoring new? Banks and other lenders have used credit scoring for 
over 30 years for credit cards and other types of consumer loans, such as 
automobile and home equity loans. Now, credit scoring is being used in 
mortgage lending.

Why are credit scores used? Lenders want to extend credit to people who will 
pay them back, and pay them back on time. They also want to be objective in 
making lending decisions. In order to approve your application for a mortgage 
loan, your lender must evaluate and understand many different risk factors, 
including your ability to repay the debt as well as how you have managed 
credit in the past. Because borrowers' credit histories can range from being very 
simple to being very complex, it is sometimes difficult to determine whether a 
given credit history is acceptable or unacceptable, or whether certain 
information represents a strength or a weakness.

By using credit scoring, a lender can quickly and objectively evaluate your credit
history in a consistent manner, and determine the likeli­hood that you will repay 
the loan as agreed. The use of credit scores not only improves the accuracy of the 
analysis of your credit history, but does so in a way that enhances the 
efficiency and consistency of the underwriting process.

How does a lender get my credit score? When you apply for your mortgage 
loan, you will give your lender permission to check your credit history with the 
various credit bureaus. More than likely, the lender will obtain your files from the 
major credit bureaus: Equifax, Trans Union, and Experian. In addi­tion to 
obtaining a credit report, the lender will also request a credit score. Your score 
is calculated by the credit bureau -- not your lender -- and is based only on the
information contained in each of the credit bureau's files.

How is my credit score determined?

A credit score is based on information in your credit report, including information 
about how you have handled debt and credit accounts in the past. The calculations
that make up a credit score are developed by looking at the way millions of 
consumers manage their credit. Credit scores have proven over time to be a 
reliable indicator of whether or not a consumer would repay a loan. A score is 
determined by summarizing a number of factors in your credit report. These 
include:                                                                                                                    

PAYMENT HISTORY. How have you paid your debts? How often have you paid 
your bills after they were due? How you paid your bills in the past gives the 
lender some indication of how you can be expected to pay them in the future. If 
you have a record of paying your bills after the due date, this can lower your 
score. How often you have been late paying your bills, how recently your 
payments have been late as well as how long you remained delinquent on any bill 
at one time are important factors.

OUTSTANDING DEBT. How many consumer loans and open charge accounts do 
you have? What are the current balances on these accounts? The lender wants 
to know how much credit you have and how much you have used. Research has 
shown that the number of credit accounts you have as well as how much of 
your available credit is used is important. 

CREDIT HISTORY. How long have you had credit? Generally, the longer you have 
had and have successfully managed credit, the higher your credit score. 
However, people with relatively new credit histories or those with only one or 
two accounts can obtain high scores as well. If you have recently established 
credit or have only a few credit refer­ences, that does not mean that you 
cannot get a mortgage. Working with your mortgage lender, you may be able to 
establish a “nontraditional" credit report that is based on how well you have paid 
other types of debts, such as rent and utility payments. 

CREDIT INQUIRIES. How many times have you authorized a lender to check your 
credit record? How many new accounts have been opened recently? Every time you
apply for credit for an automobile or con­sumer loan, to open a new charge account, etc. 
the lender checks your credit history with one of the credit bureaus. This is called an "inquiry" 
and is recorded in your credit report. Sometimes, having many inquiries within a 
recent period on your file indicates that your credit usage may be increasing and 
creates an additional level of risk for the lender. However, don't worry that checking 
with several lenders about a mortgage loan will have a negative effect on your 
credit score. The credit report data used to calculate credit scores does not include 
auto or mortgage loan inquiries that occur in the 30-day period prior to the score 
being calculated, and auto and mortgage inquiries that occur in any 14-day period 
are always considered one inquiry.

TYPES OF CREDIT. What types of credit do you have in use? Do you have a mixture 
of types of credit, such as credit cards, personal loans, etc.?

Your credit score is calculated based on your history in these and other areas. 
Having established credit, paying your bills on time, and keeping the balances on 
open accounts to moderate levels will help ensure that you have a strong credit 
history and a good score.

Are credit scores discriminatory? No. Credit scoring is an objective process, 
based only on the infor­mation in your credit report. Factors such as age, race, 
religion, gender, national origin, marital status, your income, employment, and 
where you live are not considered in determining your credit score. Credit scoring 
is a bias-free tool that helps lenders evaluate the likelihood that you will repay the 
loan based on how you have managed debt in the past. Because credit scoring 
evaluates the information in credit reports in the same objective manner, 
one borrower is just as likely as another to have a high credit score.

What's my score? Is that good or bad? Credit scores typically used in mortgage 
lending range from approxi­mately 300 to 900. Generally, the higher your credit score, the 
less risk of future default you represent to the lender. This is a strong indica­tion that you 
have successfully managed credit in the past and are likely to repay a mortgage loan. 

Keep in mind that your credit score is only one factor that the lender uses to evaluate your 
mortgage loan application and that the final decision whether or not to approve your mortgage 
loan is made by the lender after careful analysis of all of the information the lender has 
collected.

Can my score be improved?  The answer is, over time, certainly. But it may be difficult to 
immediately "fix" your credit score. The most effective way to make sure that you have the 
best possible credit score is to manage the credit you already have in a responsible manner. 
You can do this by following two simple rules.

1. Avoid becoming delinquent on any of your credit obligations (credit cards, 
automobile loans, or other installment loans). Consumers occasionally miss a payment on 
one of their bills. This can happen for any number of reasons. Isolated situations like these, 
although they should be avoided and will have some effect on your credit score, should not 
have an effect on your ability to get new credit.

A mortgage foreclosure on your credit report will have a major effect on your credit score and your ability 
to get new credit in the future.

2. Avoid overuse of your credit cards and other credit accounts. Just as it is important 
for you to pay your bills on time, it is also important that you control how much money you 
owe, especially on your credit cards. Lenders are increasingly concerned about the credit risk 
of consumers who seem to overextend themselves by using most or all of their available credit 
even if these consumers are still making payments on time.

Why would the lender need to be concerned if you still are making your payments on time? In 
recent years, there have been many news accounts of people in financial difficulty because 
they have used their credit cards up to their maximum limits and then struggled to make their 
monthly payments. For some consumers in this situation, the burden of these monthly 
payments becomes so great that they stop making payments altogether. Some file bankruptcy.
This can happen to people who have never before missed a payment.

So, while you may think everything is fine no matter how much you charge, as long as you 
can pay your monthly bills on time, the fact is that you are actually a higher credit risk than 
those that manage their credit accounts more conservatively.

Credit scores are developed by looking at the way millions of consumers manage their credit 
and are able to identify consumers who are becoming overextended, before they become 
delinquent. This risk is reflected in the credit scores of those consumers.

What if I don't have any credit references on my credit report or just a few accounts? 
Will I have a credit score? Will I be able to get a mortgage loan.?

You can obtain a mortgage loan even if you have limited credit references or no credit at all 
on your credit report. It is also not a requirement for you to have a credit score in order to obtain a mortgage.

Even if you have limited credit as little as one credit reference a lender can still obtain a 
credit score for you. If you have little or no credit references on your credit report, the lender 
will work with you to develop what is called a "nontraditional" credit report that will contain
information on how you manage financial obligations like rental payments, utility payments, 
and other items that do not normally appear on a credit report.

Will my lender tell me my score?  The decision is up to the lender and they are not required 
to share credit scores with borrowers. The lender can tell you if a credit score was used as 
part of the decision to approve or deny your loan. If your loan is denied, the lender can help 
you understand what reasons caused the denial and what you can do to get on the path to
homeownership.

How do I know if the information used to calculate my credit score is correct? How do I 
get a copy of my credit report?  Your credit report reflects the information reported to the 
credit bureaus by each of your creditors. This information changes every time something is 
added or deleted from your credit file. For in­stance, paying off an existing account, opening 
several new accounts, or exceeding the credit limit on one of your accounts will be reflected 
in your credit record.   Sometimes credit reports are inaccurate. There are also situations in 
which the time between when you open or close an account or make a payment and when this
information is updated in your credit report makes it appear your credit report is inaccurate. 
The best way to ensure that the information contained in your credit files is correct is to 
periodically request copies of your credit report. Each credit bureau keeps its own records, so 
you may want to request copies from all three: Trans Union, Equifax, and Experian. Credit 
bureaus general­ly charge a small fee for a credit report; however, some states now require 
that they give free or discounted reports. In addition, if you have been turned down for credit 
because of information contained in your credit report, you are entitled to receive a free copy 
of your report within 60 days of the denial. If you think your report contains mistakes, notify 
the appropriate credit bureau listed in this brochure directly to ensure that the errors are 
corrected in your file. They will investigate the item and remove any incorrect information. 
If information in your credit file changes, your lender may want to request another copy of the
report and a new credit score. Keep in mind, however, that making changes to your credit 
report may not change your credit score.

It is recommended that you obtain and review a copy of your credit report before you begin 
the mortgage loan process. To obtain a copy of your credit report, contact the following 
credit bureaus:  Equifax: (800) 685-1111, TransUnion: (800) 916-8800, Experian: 
(800) 682-7654.

For additional information, you may want to visit the Equifax, Trans Union, or Experian world wide web sites:   
Equifax:  equifax.com,  Trans Union: tuc.com   Experian: experian.com.

If there are errors in my credit report do I have to wait for them to be corrected 
before applying for a mortgage?  No. If you have reviewed your credit report and 
found errors, you should contact the credit bureau immediately and get it to correct the
information. You still can apply for a mortgage while this information is being corrected.
Just explain the circumstances to the loan officer and explain that the credit bureau is 
correcting the information. 

If you already have applied for a mortgage loan, your loan officer still can evaluate your 
credit report and your loan application without a credit score by reviewing the information
that is correct in your credit report.  However, lenders do consider consumers who 
establish a pattern of frequently paying their bills late to be greater credit risks than 
those who pay on time. As a result, lenders often are reluctant or unwilling to extend 
new or additional credit to these consumers. Credit scoring reflects not only this concern,
but the actual experience of lenders.