12 Credit Secrets You Need to Know
Credit scores are a statistical means of assessing how likely a borrower is to pay back a loan based on the data available in the borrower’s credit report at a certain point in time. Scores range from 300-800.
Understanding your credit score is a smart idea for many reasons, especially as you think about purchasing a home. Qualifying for a home loan is greatly influenced by your credit score and knowing how good or bad your credit score is an important first step down the path to homeownership.
Here are 12 credit secrets you need to know:
1. Credit Scoring Factors: The factors provided with each score are important. See what your factors say below each score. The easiest factor to work with is Proportion to Balance on revolving debt. Bureaus take into consideration any collections and charge offs that are revolving.
- Payment history (tradelines and public records):
- Adversely impacted by derogatory credit (i.e. bankruptcy, foreclosure, collections, recent late payments)
- Revolving debt ratio (amount owed vs. overall credit limit)
- Pay down balance below 30 percent of credit limit
- Increase credit limit
- Transfer balances to an acceptable card
- Length of credit history
- How long accounts have been established
- How long it has been since accounts were used
- Credit inquiries and new accounts
- Number of accounts currently open
- Number of new accounts opened
- How recent new accounts were opened
- Recent inquiries
- Types of credit
- Credit mix
- Types of accounts
2. Each bureau (Experian, Equifax, and TransUnion) scores consumer credit data slightly differently: In general, FICO scores are made up of the following:
- Payment history (35% of your scores): Whether you've paid past credit accounts on time.
- Amounts owed (30% of your scores): The amount of credit and loans you are using.
- Length of credit history (15% of your scores): How long you've had credit.
- New credit (10% of your scores): Frequency of credit inquiries and new account openings.
- Credit mix (10% of your scores): The mix of your credit, retail accounts, installment loans, finance company accounts, and mortgage loans.
3. Score Changes:
- The credit score can change whenever the credit report changes. In fact, it may change every day depending on when an individual creditor reports.
- These changes are typically minor; with the following exceptions: bankruptcy, foreclosure, and late payments have the largest impact and can change scores quickly.
4. Score Improvement:
- Know your facts.
- Pay your bills on time!
- Keep balances on credit reports under 30 percent.
- Watch retail/finance credit inquiries.
- Ask creditor to remove lates.
- Negotiate collections - Offer to pay in exchange for deletion off credit report.
- Do NOT borrow from HIGH RISK finance companies.
- Do NOT close revolving accounts.
- Do NOT pay off old collection accounts BEFORE pulling credit.
- Do NOT open new credit during the loan process.
- Bankruptcy (Chapter 7) - 10 years from the date filed
- Bankruptcy (Chapter 13 completed) - 7 years from the date filed
- Bankruptcy (Chapter 13 not completed) - 10 years from the date filed
- Civil judgement - No longer reported
- Collections - 7 years from the first delinquent date
- Collections (Medical) - 7 years from the first delinquent date
- Credit accounts without delinquencies - Indefinitely
- Credit accounts with delinquencies - 7 years from the date of delinquency
- Tax liens (Unpaid) - No longer reported
- Tax liens (Paid) - No longer reported
When you check your credit report, always be on the lookout for mistakes. It’s important to review and resolve these so they do not negatively impact your credit score.
Mistakes appear on a credit report for the following reasons:
- Apply for credit under different names.
- Clerical errors (i.e. spelling of names, incorrect addresses, etc.) when data is entered.
- Inaccurate Social Security number.
- Loan or credit card payments opened in a nickname will create a file with bureaus.
7. Collection Agencies:
These agencies will DELETE paid collections. It can never hurt to ask. PORTFOLIO will remove any type of collection they report. Many times, for score improvement, this is all it takes!
- A-1 Collection
- Asset Care
- Bull City
- Choice Recovery
- Debt Recovery Solutions
- IC Systems
- Receivable Management
8. Mortgage Lending:
Fannie Mae and Freddie Mac approved versions:
Each file has DNA of its own. What works for one consumer, might not work for another. From years of experience, we have identified some of the bureaus’ individual tendencies.
Equifax FICO Score 5 (also known as EQ-04 or Beacon 5)
- Typically scores derogatory accounts more harshly than versions 2 and 4.
- Tend to drop when paying off derogatory accounts and will typically take 3-6 months to rebound.
Experian FICO Score 2 (also known as EX-98 or Risk Model V2)
- Typically scores a single late payment less harshly than FICO Score 5.
- Scores will often rebound immediately from paying charged off and other types of derogatory accounts, especially charged off revolving.
TransUnion FICO Score 4 (also known as TU-04 or TransUnion FICO Risk Score Classic 04)
- Typically will count multiple collections as one account.
- Tends to score derogatory utility accounts more harshly.
- Regain points by paying charged off revolving and utility accounts.
- Paying collections often yields no improvement.
Other credit score variations not approved by Fannie Mae and Freddie Mac
- Each lending industry has its own FICO score model specific to their own criteria.
- Consumer-purchased credit scores are often scored using FICO Score 8 or Vantage Score 3.0
- FICO Score 8: Experian Boost DOES NOT help with scores in the lending industry!
- Single instances of late payments compared to previous FICO Score versions.
- All FICO Score versions include authorized user credit card accounts when calculating a FICO score. However, FICO Score 8 substantially reduces any benefit of so-called “tradeline renting.” That’s a credit repair practice that entices consumers into being added to a stranger’s credit account in order to misrepresent their credit risk to lenders.
- Boost: Allows consumers to report their existing utility bills and other monthly obligations to raise their score. For consumers who have limited or no credit, this service allows consumers to self-report alternative credit which is available to all lenders when pulling that consumer’s report. This will NOT help your mortgage FICO score!
- Vantage Score 3.0: (i.e. Credit Karma)
- Payment history – 40 percent
- Age and type of credit – 21 percent
- Percent of credit used – 20 percent
- Total balances/debt – 11 percent
- Recent credit behavior and inquiries – 5 percent
- Available credit – 3 percent
- Typically penalizes late mortgage payments more harshly than other types of credit.
- In most cases, ignore collection accounts that are paid off regardless of the original balance.
ECOA gives everyone who has been denied or turned down for credit the right to obtain the reasons why within 30 days. Obtain one free copy of your credit report from each of the three major bureaus (Experian, Equifax, and TransUnion) once a year at AnnualCreditReport.com.
10. Dispute Removals:
Have a dispute on your credit report that you would like removed? Check your credit report for the dispute and then contact the credit bureaus to request that it be removed:
- Experian: 800-493-1058 (Option 3). Live person. You will need the National Consumer Assistance Center to remove dispute verbiage. Their hours of operation are from 8AM-5PM PST. Dispute removals can take up to 72 hours (email confirmation).
- Equifax: 404-885-8300 or 800-203-7843. Live person. You will need to speak to someone in the Executive Consumer Service Department. Dispute removals can take up to 72 hours.
- TransUnion: 800-916-8800. Automated greeting; stay on the line and transfer to a live person. You will need to speak to someone in the Special Handling Department for instant dispute removal.
Be sure the bureaus are aware that the request is to REMOVE existing verbiage and not to initiate a new dispute.
“I need to request removal of compliance condition remarks code of AID (Account in Dispute) as I am no longer disputing an account on my credit report.”
“I recently received a copy of my credit report, and there is a compliance condition code causing an ‘Account Information Disputed by Consumer’ remark to appear. I am not disputing the account and need the compliance code removed to eliminate the account in dispute remark.”
In addition to calling the bureaus, contact the creditors to inform them that you are no longer disputing the account(s). This will prevent the disputes from re-reporting in the future.
11. Credit Freeze:
Phone numbers for consumers if they do not know their pin number.
- Equifax: 800-203-7843
- Experian: 888-397-3742
- TransUnion: 888-909-8872
12. Opt Out (Triggers):
Opt out to prevent triggers to other lenders when a creditor pulls your credit. This can take five days to go into effect.
- Equifax Options
- P.O. Box 740123
Atlanta, GA 30374
- P.O. Box 740123
- Experian Consumer Opt Out
- P.O. Box 919
Allen, TX 75013
- P.O. Box 919
- TransUnion Opt Out Request
- P.O. Box 505
Woodlyn, PA 19094
- P.O. Box 505
For more information about understanding your credit score and how it affects obtaining a mortgage loan, please contact your local HOMESTAR Mortgage Loan Originator today.
Source: Content provided by Barbara Lovejoy with Universal Credit