Credit Scoring – How Does it Work?

Credit Scoring places you in three general categories.

Score Between 700 and 850 = Prime. Your loan will involve basic underwriting, probably through a computerized automated underwriting system and could be completed within minutes. If you are in this category, you have a good chance of obtaining a low interest rate and closing your loan quickly.

Score Between 500 and 699 = Sub-Prime. You may not be eligible for the best loan rates and terms offered. You most likely have negative information on your credit report, such as late payments, bankruptcy, collections or charge-offs. I will try to find the best strategy to help you improve your credit as well as get the loan you need.

Score Between 0 - 499 = Ineligable for conventional financing. This can be because a person has never borrowed money before and therefore has a '0' score or bankruptcy, collections, late payments and charge-offs appear on the credit report. Hard money lenders may be the only avenue for financing.

Loan-Level Price Adjustment (LLPA) Matrix and Adverse Market Delivery Charge (AMDC) Information

Rebuilding your Credit Score = The length of time to rebuild your score depends on the reason behind your low score. Most decreases in scores are due to the addition of a new element to your credit report such as a delinquency or an inquiry. These new elements will continue to affect your score until they reach a certain age. Delinquencies remain on your credit report for seven years. Most public record items remain on your credit report for seven years, although some bankruptcies may remain for 10 years and unpaid tax liens remain for 15 years. Inquiries remain on your report for two years.

Note = While many lenders use these scores to help them make lending decisions, each lender has its own strategy, including the level of risk it will accept for a certain loan product. There is no single “cutoff score" used by all lenders and there are many other factors used to determine your eligibility and interest rate.

AnnualCreditReport.com

AnnualCreditReport.com allows you to request a free credit report once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.
From this site you will be directed to each of the agencies websites and from there you can request errors on your credit report to be resolved. You must make the same request to every agency that is reporting the error. The most common errors found on credit reports are paid collections still showing as open and late payments that were forgiven by the creditor but still showing on the report. You will need to have the name, number and title of the person you spoke with at the credit issuing bank who has confirmed the error for the credit agencies to investigate the matter.

The Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) outlines specifically who can see your credit profile. Businesses must have a "legitimate business need," and a "permissible purpose," as stated in the federal law to obtain your credit file. Otherwise, only you, and only those who you give written permission, can access your credit files. Your neighbors, friends, co-workers, and even your family members cannot have access to your credit profile unless you authorize it.

Some examples of those who can access your credit files are:
- Credit grantors
- Collection agencies
- Insurance companies
- Employers

Any company that receives a copy of your credit profile will be listed under the "Inquiry" section of your report. An "inquiry" is a listing of the name of a credit grantor or authorized user who has accessed your credit file. Credit grantors post an inquiry before offering you a pre-approved credit card application. These are listed as "promotional" inquiries on your credit file because only your name and address were accessed, not your credit history information. They are NOT sent to credit grantors or businesses for reasons of credit reporting. They are listed for your informational purposes only.

The Fair Credit Reporting Act (FCRA) is the federal law regulating credit reporting companies like Equifax, Experian, and TransUnion. It has been in effect since 1971 and undergoes periodic revisions by the Federal Trade Commission. This law protects consumers' rights such as the right to review and contest information in their credit profiles. It also specifically defines who can access the information in a credit profile, and how you are notified of this activity.

You also have the right, under the Fair Credit Reporting Act, to dispute the completeness and accuracy of information in your credit file. When a credit reporting agency receives a dispute, it must reinvestigate and record the current status of the disputed items within a "reasonable period of time," unless it believes the dispute is "frivolous or irrelevant." If the credit reporting agency cannot verify a disputed item, it must delete it. If your report contains erroneous information, the credit reporting agency must correct it. If an item is incomplete, the credit reporting agency must complete it. Credit Links

For example, if your file shows that you were late in making payments on accounts, but fails to show that you are no longer delinquent, the credit reporting agency must show that your payments are now current. If your file shows an account that belongs to another person, the credit reporting agency would have to delete it. Also, at your request, the credit reporting agency must send a notice of correction to any report recipient who has checked your file in the past six months.

For items in your credit profile which you feel 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 can 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.

The Credit Reporting Agencies

Credit Reporting Agencies collect information about you and your credit history from public records, your creditors and other reliable sources. These agencies make your credit history available to your current and prospective creditors and employers as allowed by law. Credit agencies do not grant or deny credit.

The credit reporting agencies are:

Equifax
PO Box 105873
Atlanta, GA 30348
800-685-1111
Experian
PO Box 2002
Allen, TX 75013
888-EXPERIAN (888-397-3742)
Transunion
PO Box 390
Springfield, PA 19064
(800) 916-8800
(800) 851-2674

Running your credit

If you are interested in finding out your credit scores, I can run your credit for you. All I will need is your full name, address, SS#, a $19.50 check made out to Real Estate Financial Services, and a signed Credit Authorization Form. The benefit of having me run your credit is that once I pull your credit report with all three Credit Agencies, I can work with you to help resolve any problems or issues that might be present on the credit report.