Loans by Zach

Articles about credit reports and credit scores:

Free Annual Credit Report
Your Credit Score: How It All Adds Up
Does Checking Your Credit Report Lower Your Score?
Tips to raise your credit score
Credit Suicide
Self-help Credit Repair – How to improve your score
How credit report gets affected by credit history
Credit Scores – What are the types and why do they vary?

AnnualCreditReport.com is the official site to help consumers to obtain their free credit report. This central site allows you to request a free credit file disclosure, commonly called a credit report, once every 12 months from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.

Frequently Asked Questions

What is a credit file disclosure or a credit report?
A credit file disclosure, commonly called a credit report, provides you with all of the information in your credit file maintained by a consumer reporting company that could be provided by the consumer reporting company in a consumer report about you to a third party, such as a lender. A credit file disclosure also includes a record of everyone who has received a consumer report about you from the consumer reporting company within a certain period of time (”inquiries”). The credit file disclosure includes certain information that is not included in a consumer report about you to a third party, such as the inquiries of companies for pre-approved offers of credit or insurance and account reviews, and any medical account information which is suppressed for third party users of consumer reports. You are entitled to receive a disclosure copy of your credit file from a consumer reporting company under Federal law and the laws of various states.

How do I request my free credit report through the Annual Credit Report Request Service?
Please click here to order your free annual credit report by secure website, phone or mail

Am I entitled to a free credit report under state law?
In addition to consumers who are eligible for a free credit report through the Annual Credit Report Request Service; consumers in some states are eligible for a free credit report under state law. The following states have laws that make free credit reports available to consumers: Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey and Vermont.

How often can I request a free credit report through this website?
You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. This free credit report can be requested through this website, by phone or by mail.

Should I order all my credit reports at one time or space them out over 12 months?
You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies through the Central Source. It is entirely your choice whether you order all three credit reports at the same time or order one now and others later. The advantage of ordering all three at the same time is that you can compare them. (However, you will not be eligible for another free credit report from the Central Source for 12 months.) On the other hand, the advantage of ordering one now and others later (for example, one credit report every four months) is that you can keep track of any changes or new information that may appear on your credit report. Remember, you are entitled to receive one free credit report through the Central Source every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion – so if you order from only one company today you can still order from the other two companies at a later date.

How else can I request my free annual credit report?
If free credit reports are available in your state through the Annual Credit Report Request Service, you can request a free annual credit report by phone or mail and it will be mailed within 15 days. However, you can receive a report immediately by using this secure website. Click on this link to find information on how to request a free annual credit report by phone or mail. Deaf and hard of hearing consumers can access our TDD service by calling 7-1-1 and referring the Relay Operator to 1-800-821-7232.

How do I request a credit report by mail for a child under 13 years of age?
The credit reporting agencies do not knowingly maintain credit files on minor children. If you suspect that your minor child’s information has been used fraudulently, you should contact the credit reporting agencies directly and report the illegal use of your child’s information to law enforcement. Please supply each credit reporting agency with your child’s complete name, address, date of birth and a copy of the minor child’s birth certificate and social security card. Additionally, please provide a copy of your driver’s license or other government-issued proof of your identity, which includes your current address, and a current utility bill containing your current address so the credit reporting agencies may promptly respond to your request. The addresses for the credit reporting agencies are listed below:

Equifax
P.O. Box 740256
Atlanta, Georgia 30374

Experian
P.O. Box 9554
Allen, Texas 75013

TransUnion
P.O. Box 6790
Fullerton, CA 92834
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Where can I find information on disputing or correcting information in my credit file?
Please contact the nationwide consumer credit reporting company that provided the credit report

Equifax – www.investigate.equifax.com
Experian – www.experian.com
TransUnion – www.transunion.com

What is a credit score?
A credit score is a complex mathematical model that evaluates many types of information in a credit file. A credit score is used by a lender to help determine whether a person qualifies for a particular credit card, loan, or service. Most credit scores estimate the risk a company incurs by lending a person money or providing them with a service –– specifically, the likelihood that the person will make payments on time in the next two to three years. Generally, the higher the score, the less risk the person represents.

How can I get my credit score?
You can purchase a credit score by contacting one of the nationwide consumer credit reporting companies.

Equifax – www.equifax.com
Experian – www.experian.com
TransUnion – www.transunion.com

You can also purchase a credit score when you request your free annual credit report through this website.

Where can I find out more about credit reports, my rights as a consumer, the Fair Credit Reporting Act and the FACT Act?
Please visit www.ftc.gov/credit

What about companies that claim they can improve my credit report for a fee?
The Federal Trade Commission (FTC) cautions consumers to be wary of companies that make claims regarding credit repair. These companies, commonly called credit clinics, don’t do anything for consumers that consumers cannot do for themselves at little or no cost. Beware of any organization that offers to create a new identity and credit file for you. The FTC and state attorneys general have filed actions against those who pursue these fraudulent practices. Here are some warning signs that the FTC and others say consumers should look out for to determine if they might be dealing with a credit clinic:

* An organization that guarantees to remove late payments, bankruptcies, or similar information from a credit report
* An organization that charges a lot of money to repair credit
* A company that asks the consumer to write to the credit reporting company and repeatedly seek verification of the same credit account information in the file, month after month, even though the information has been determined to be correct
* An organization that is reluctant to give out their address or one that pushes you to make a decision immediately

For a helpful brochure about credit clinics, you can write to the Federal Trade Commission, Sixth and Pennsylvania Avenues, N.W., Washington, D.C. 20004 and request a brochure titled “Credit Repair: Self Help May Be Best.”

Where can I find out more about credit repair?
Please visit the Federal Trade Commission Credit Repair information at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm

Where can I find out more about identity theft?
Please visit the Federal Trade Commission Identity Theft Center at http://www.consumer.gov/idtheft/

How secure is my information?
The Annual Credit Report Request Service recognizes the importance of secure online transactions, and takes steps to safeguard the privacy of information you provide through online forms. For your online requests for free credit reports, programs encrypt the information you provide on the request form before transmission to the selected nationwide consumer credit reporting company(ies). This information is decrypted only upon receipt by the selected credit reporting company(ies). Physical, electronic and procedural safeguards designed to guard your personally identifiable information are maintained.

To help ensure the privacy and protection of your personal information, it is recommended that you do not access the Annual Credit Report Request Service through links from unfamiliar websites. We recommend that you access the Annual Credit Report Request Service directly at www.annualcreditreport.com.

Further, the site’s security protocols and measures are designed to protect the personally identifiable information you provide from unauthorized access or alteration. These measures include physical security, technological security measures and encryption of certain information.

There is a new $4,000 grant (Home Run 2 Grant Program) to assist home buyers who are:

1. Hiring a builder to build a new personal residence,
2. Purchasing a partially-finished residence and contracting to have it completed, or
3. Purchasing a newly-built, never-occupied, completed residence.
4. Income restictions-Single person max income $75,000 and married couples max income $150,000.
5. Must be primary residence.

As with the original Home Run program, the Home Run 2 Grant will be administered by Utah Housing Corporation. Grant funds will be wired to the settlement agent closing the home purchase transaction. Funding will be available for approximately 1,950 grants. The approximate number of remaining grants may be viewed at all times on the Utah Housing website at www.utahhousingcorp.org.

For more details, read the FAQS for homebuyers and real estate professionals.

Program ends November 30, 2009 or when grants are gone.
As of 09 November 09, there are 1,947 grants left.

We are an approved lender for this grant. So call me now and let me help you!

Your Credit Score: How It All Adds Up

1. Introduction
2. New Rights to Credit Scores
3. Who’s Keeping Score?
4. The Tally – When Points Are Added or Taken Away
5. Do Credit Report Inquiries Lower Your Score?
6. You Have to Play to Score
7. Scores for Sale – Proceed with Caution
8. Tips for Improving Your Score
9. References

1. Introduction

For a three-digit number, your credit score packs a big wallop. A low score can thrust you into the financial abyss of the sub-prime market, costing you thousands of dollars in added interest over the life of a car loan or mortgage. Consumers who have a very low score –or no score at all– may not get credit on any terms.

A quick glance at this single bit of information gives creditors all they feel they need to make judgments about whether you will repay a car loan, mortgage or credit card debt. Your score is a snapshot of your credit report, giving creditors instant clues about how you pay your bills, how you’ve handled credit over the years and even whether financial troubles have led you into the courts.

Born as a mortgage underwriting tool in the mid 1990s, credit scores are now commonly used by all lenders. Your credit report and/or your credit score may also be seen by employers, landlords, or cell phone and utility companies. The insurance industry has developed its own highly controversial credit-based scoring system. For more on insurance scores, see PRC Fact Sheet 25, CLUE and You: How Insurers Size You Up, www.privacyrights.org/fs/fs26-CLUE.htm.

A credit score is cold-hearted. It says nothing about unexpected medical bills or loss of a job. Proponents of the credit scoring system claim the process is fair to everyone since neither race, sex, nor age are considered. (For more on the factors that make up your credit score, see Part 4 of this guide.)

Others are skeptical of the claimed nondiscriminatory effects of scoring. Consumer advocates worry, for example, that low-income workers, minorities, or segments of the population that do not have access to traditional credit sources like major credit cards or mortgages may score lower than others. Another major concern, documented in various studies, is the accuracy of data in the underlying credit report. (See the References section at the end of this guide for links to studies on accuracy in credit reporting and credit scoring.)

Potential discrimination in credit-based scoring and accuracy in reporting are ongoing consumer concerns. The Fair and Accurate Credit Transactions Act of 2003 (FACT Act, PL 108-159), which amended the Fair Credit Reporting Act (15 USC §1681) (FCRA), requires the Federal Trade Commission and other federal financial agencies to study and report to Congress on both credit scoring and accuracy. For further reading on the ongoing FACT Act studies, see the FTC’s FCRA section, www.ftc.gov/os/statutes/fcrajump.htm.

Consumer awareness of credit scoring has increased dramatically since the late 1990s. Federal law now gives you the right to get some scores for a “reasonable” fee. (See Part 2.) However, a September 2005 study released by the Consumer Federation of America jointly with Providian concluded that while public knowledge of credit scoring has improved, the majority of consumers still have limited understanding of credit scores. www.consumerfed.org/pdfs/Providian_Press_Release_9_05.pdf

The purpose of this guide is to acquaint you with the basics of scoring, offer tips on how to improve your score, and give you additional resources for further information.

2. New Rights to Credit Scores

Credit scores have been available for some time. Some states – California led the way — passed laws to require score disclosures. Even without the legal requirement, scores soon became available as industry practice. Recent amendments to the FCRA created a national standard allowing access to credit scores for a “reasonable fee”. However, the “reasonable fee” access only applies to “educational” credit scores compiled by the three national credit bureaus – Experian, TransUnion, and Equifax.

What is a credit score?

FACTA defines a “credit score” as:

A numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default (and the numerical value or the categorization derived from such analysis may also be referred to as a ‘risk predictor’ or risk score’Ö(FCRA §609(f)(2))

In short, a credit score is a grading system that adds or subtracts points based on select data in your credit report. Late payments, maxed out credit cards, and bankruptcies are negative factors that take points away. A solid payment history and prudent use of available credit add points. Your final grade — your credit score — is said to measure how likely it is that you will repay a loan. (For more on the factors that go into calculating your credit score, see Part 4.)

Do I have a right to free credit scores?

No. FACTA says you can get your score at a ìreasonableî fee to be determined by the FTC. As of this writing, the FTC has not issued a final regulation on reasonable fees for credit scores. (The FTC’s proposed regulation on fees and public comments received can be accessed at http://www.ftc.gov/opa/2004/11/factafrn.htm.)

FACTA does, however, give everyone the right to a free credit report from each of the three national credit bureaus. Free reports can be obtained once every 12 months. Since information included in your credit report is the basis for all scoring models, errors in the report can translate to a lowered credit score. For more on free credit reports, see www.ftc.gov/bcp/conline/edcams/freereports/index.html.

Does FACTA give me the right to get my FICO score?

No. FACTA only covers two kinds of scores. The “educational” score shows you how scoring works and how you rate as a credit risk. You may also get a “mortgage score,” that is a score used in connection with residential real property loans. You are entitled to the mortgage score free if your loan is denied.

Can I get my credit score without also buying a credit report?

This depends mainly on where you live and where you get your score. Laws in California and Colorado allow you to get your credit score for a “reasonable” fee. Educational scores produced by the credit bureaus may also be purchased as a stand-alone product without also buying a credit report.

Are stand-alone scores of any value to me?

Stand-alone “educational” scores can give you an indication of your credit risk level. Also, a score that is completely out of line with your knowledge of your own financial status may indicate something amiss in the underlying credit report. But keep in mind, scores are in a sense a “moving target,” depending on the information in the credit report at the time your file is scored.

Will I know how the credit bureau arrived at this score?

When you request your “educational” credit score, it should come with a notice that tells you:

* That the credit scoring model may be different than the credit score that may be used by lenders.
* The range of possible scores under the model used.
* The key factors (limited to four) that adversely affected the credit score.
* The date the credit score was created.

Can I dispute a low credit score?

No. The dispute process outlined in the FCRA applies to your credit report, not your credit score. Since your score is based on data in your credit report at any given time, correcting errors in your credit report should improve your score. (For information on how to dispute data in your credit report, see www.ftc.gov/bcp/conline/pubs/credit/crdtdis.htm.)

3. Who’s Keeping Score?

Minnesota based Fair Isaac, Inc., www.myfico.com, was the first company to develop a credit scoring model based on selected criteria included in credit reports. In the 1990s the mortgage industry started to use scoring models to automatically rate consumers. In these early years credit scoring was largely a mystery to consumers.

This all changed when California passed a law in 1999 requiring mortgage lenders to disclose credit scores. The California law also requires the three national credit bureaus – Experian, TransUnion, and Equifax – to disclose credit scores to consumers who request a score.

Today credit scoring has moved far beyond the mortgage industry and is used by nearly all lenders to make instant decisions about the odds a loan will be repaid. Scoring models developed by Fair Isaac, which have come to be known simply as your FICO, continue to dominate the credit scoring market.

Fair Isaac licensed it scoring software to all three national credit bureaus. Then each bureau adopted its own version of the Fair Isaac model. Different scoring factors coupled with different data in each bureau’s credit files can lead to wide disparity in scores. You may have seen this first hand when you applied for a car loan or other credit.

In March 2006 the three national credit bureaus announced a joint venture and a new credit scoring system — VantageScore. With the new scoring system, the bureaus apply a uniform scoring model. The bureaus say any disparity with VantageScore is because of different data included in the files of each bureau. Following the academic scale, VantageScores range from 501 to 990 to which is then applied a letter “grade.” You get an “A,” for example, if you score between 901-990, the highest range under the VantageScore system.

As we discuss in Part 4, FICO scores, with a range of 300 to 850, have been the scoring norm. If VantageScores with a cap of 990 take hold, this is bound to cause consumer confusion. You might think, for example, that a score of 850 puts you at the top as a credit risk. You’d be right if your lender used a FICO score. But, if your lender scores under the VantageScore system, you’ll only get a “B.” (For a description of VantageScore numerical ranges and how this translates to a letter ìgrade,î see Experian’s news release, dated March 14, 2006. http://experian.global-pressoffice.com/documents/showdoc.cfm?doc=2129 and Experian’s frequently asked questions about scoring, www.experian.com/consumer/credit_score_faqs.html#6) In the future, when you apply for credit, it’s wise to ask your lender what scoring system it uses.

In addition to FICO scores and the new VantageScores, many companies have developed scoring models. Experian, for example, estimates there may be up to 1,000 different scoring models, each with a different scoring range. Some models focus on specific types of loans like automobile loans or credit cards. Currently there is what the Federal Trade Commission characterizes as an “extensive and dynamic market for credit score products.” Very often credit scores come bundled with offers to sell other products such as credit reports, credit report monitoring services or identity theft insurance. We discuss such offers in Part 7.

In recent years, it has become the industry norm, although not required by federal law, to allow consumers to purchase credit scores or get free scores when applying for a mortgage. Scores may also now be available through companies with which you have an existing relation. For example, some credit card companies offer a free score along with your monthly statement. Under recent amendments to the FCRA, consumers nationwide are entitled to purchase a credit score for a “reasonable” fee. But, again, the FCRA only applies to “educational” scores that show you how scoring works and how you rate as a credit risk.

4. The Tally and When Points Are Added or Taken Away

In Part 3 we discuss the new joint scoring model called VantageScore adopted by the three national credit bureaus. The bureaus have not disclosed the factors that go into the VantageScore. However, it is nearly certain that many factors included in the FICO model, like late payments or a bankruptcy, will affect your VantageScore. Because the VantageScore factors are unknown, for the sake of this guide, we continue to follow the FICO model.

FICO scores range from 300 to 850, with any score under 620 considered high risk, often called “subprime.” The higher your score, the more likely you are to be seen by creditors as a good risk. This quick risk analysis translates into dollars in your pocket. The difference in interest rates and finance charges can be dramatic. The report by the Consumer Federation of America jointly with Providian estimates that consumers nationwide could save $16 billion a year in lower credit card finance charges by improving credit scores by an average of 30 points. www.consumerfed.org/pdfs/Providian_Press_Release_9_05.pdf

The Fair Isaac home page translates the effect of a good rating into the language of monthly mortgage payments on a 30-year fixed loan of $150,000. www.myfico.com Examples change as interest rates fluctuate, but one recent example given is:

* A consumer with the highest score range of 760-850 with an interest rate of 5.55% would pay a monthly mortgage payment of $856.
* One within the lower scoring range of 620-639 with an interest rate of 7.15% would have a monthly mortgage payment of $1,012.

FICO does not give examples of subprime rates for scores below 620. However, the site includes an interactive calculator for estimating interest rates and payments for scores below 620. www.myfico.com/myfico/CreditCentral/LoanRates.asp

What factors determine my credit score?

The exact formula of the FICO and other scoring models is a trade secret. However, Fair Isaac has identified five factors and the importance given to each factor. Other scoring models include most of the same factors. However, the weight given to individual factors may vary.

The five are (www.myfico.com/CreditEducation/WhatsInYourScore.aspx):

* Payment history ñ 35%
* Amounts owed ñ 30%
* Length of credit history ñ 15%
* New credit ñ 10%
* Types of credit used ñ 10%

It’s clear that the single most important factor is your record of paying your bills on time. The number of delinquent accounts and the length of time the account went unpaid also factor into the calculation. Your payment history may also include financial problems that have ended up in court such as bankruptcy or judgments entered against you.

Over five years ago I had several late payments due to an illness. Will this affect my score?

Yes, but not as much as a recent late payment. Negative information can remain on your credit report for seven years, and this information will be calculated into your score as long as it appears on your credit report.

However, the more recent the late payment, the more it will detract from your score. In addition, the longer a debt goes unpaid and the more accounts that show a history of late payments, the more points will be subtracted from your total score. For example, if your credit report shows several accounts that were 120 days past due, this is far more damaging to your score than one account that was 30 days past due.

Does the calculation include only negative information?

No. The number of accounts shown on your credit reported as “never late” or “paid as agreed” have a positive effect on your credit score. It just seems like the calculation is based only on negative factors.

Often negative information is reported without a corresponding report of positive information. Utility companies are a good example of this. You are not likely to get positive points for paying your electric bill on time, but the utility company late payments will negatively impact your score. Parking tickets or even library fees may show up on your credit report. But, you won’t get extra points for being a good driver or responsible library patron.

Does my credit card company have to report on-time payments to the bureaus?

There is nothing in the FCRA that requires any company to report either positive or negative information. If a company you do business with does not report to at least one of the three national credit bureaus, contact the company and ask that your good record be included in your credit report.

Also, some companies that report on-time or late payments may not report the maximum credit available. The ratio of credit used to credit available factors into your score. If you use credit wisely and don’t spend to the maximum limit, you deserve the benefit of this positive data.

If companies you do business with refuse to report to one or more of the credit bureaus and/or do not report the maximum credit available, take your business elsewhere. And let them know why you are moving on. Companies who lose customers because of their irresponsible business practices need to hear from you.

Does it improve my score to pay off my credit card balance every month?

Not necessarily. Points are given or taken away based on the amount of available credit used. Certainly, using the maximum amount on your credit card and paying only the minimum each month can lower your score. But, using a large percentage of your available credit each month, even when you pay the bills faithfully, can detract points if you are carrying a high balance at the time your credit history is scored.

Remember, the credit score is a snapshot of your credit report on any given day. Most credit card companies and other lenders report to the credit bureaus every 30 days. If your credit report is scored right before your monthly credit card bill is due and you’ve used a significant portion of your available credit, your score will go down.

Why do I have a different score from each credit bureau?

There may be a number of explanations for varying scores. Not all lenders report to all three credit bureaus. A late payment reported by a credit card company to only one bureau would lower your score on that bureau’s credit report. Also, until recently, each credit bureau used its own variation of the FICO model. Even slight deviations could end in a different score. As discussed in Part 3 of this guide, with the VantageScore the three national bureaus now use the same scoring model.

A 2002 study conducted by the Consumer Federation of America and the National Credit Reporting Association examined the reasons for different scores at the three national credit bureaus. In addition to different reporting practices by lenders, the study found that consumers sometimes have multiple or mixed credit reports. This may be explained by variations of names used on credit applications or by credit files that include information about more than one consumer. www.consumerfed.org/pdfs/121702CFA_NCRA_Credit_Score_Report_Final.pdf

How do the types of loans I have affect my credit score?

Major bank credit cards with good payment records are better for your score than a department store card. Loans or credit established with a finance company, even when you have a good payment record, do not carry as much weight as a major bank card. A major bank card says you are in the mainstream of credit where credit limits can reach the stratosphere with a good payment record.

A revolving credit card such as with a department store generally carries a very low credit limit. One who seeks credit from a finance company may be considered in the high-risk category and ineligible for the mainstream credit market. Installment loans such as car loans and mortgages have a positive effect on your credit score although a high loan balance-to-value ratio can detract from your score.

Will credit counseling hurt my score?

According to Fair Isaac, the fact that you participate in credit counseling is not calculated into your FICO score. However, scoring models developed by other companies do not necessarily follow the FICO factors. For a list of what is and is not included in your FICO score, see the Fair Isaac Credit Education section, www.myfico.com/CreditEducation/?fire=1.

In our view, credit counseling should not be a scoring factor. Credit problems that cause you to seek counseling are almost certainly reflected in your credit report. Any scoring system that includes counseling as a negative factor is simply unfair. If anything, counseling should be considered a positive factor.

5. Do Credit Report Inquiries Lower Your Score?

Your credit report includes more than your record of paying bills. One section of the report lists inquiries. These are records showing who has accessed your credit report. There are various purposes allowed for companies to look at your credit report.

* Your credit card company may monitor your report to review your account with them. This type of inquiry appears on your credit report, but does not affect your credit score.
* Creditors and insurers review your report to see if you qualify for an offer. These “preapproved” or “prescreened” offer reviews do not affect your credit score. (For information on how to stop preapproved reviews, see www.privacyrights.org/fs/fs1a-basics.htm.)
* You apply for a job and the employer orders your report. This inquiry does not affect your credit score.
* You check your own credit report. This will not lower your credit score.

The only credit report inquires that can lower your credit score are applications for new credit.

I’m shopping for a new car and have applied to several lenders. Will these inquiries lower my score?

According to Fair Isaac, multiple inquiries to automobile or mortgage lenders within a short period of time (usually 30 days) generally count as a single inquiry. Thus, a little shopping for the best interest rate should not hurt your credit score. www.myfico.com/CreditEducation/FactsFallacies.aspx?fire=5

However, when shopping for a big-ticket item or going on a shopping spree in a department store, it is probably wise to pass up the 10% discount offered by many retailers for opening a new store account.

Will closing old credit accounts increase my score?

No. In fact the opposite may be true. Scoring models look at both your current use of credit and the length of time you have used credit. Older accounts even with a zero balance establish your history as a credit user.

Do I need a perfect score of 850 to get the best interest rate?

No. Fair Isaac estimates a score ranging between 720 and 850 qualifies for the best interest rate. If you have a score within this range, but are being quoted sub-prime rates, it may be time to shop for another lender. At least, you should try to negotiate a better rate based on your good score.

6. You Have to Play to Score

For various reasons, some people shun credit, choosing instead to live on a cash-only basis. Perhaps self-discipline, a bad experience with credit, or even family tradition have steered you away from credit cards or installment loans. Others, especially recent graduates just starting out, have not had a chance to establish a credit history.

A traditional credit score calculation is nearly impossible without a credit file. Having just a few notations in the file can result in a “thin” file, equally impossible to conform to the standard scoring models.

I pay my bills on time, but in cash. Can I ever hope to get credit?

Fair Isaac has developed a new scoring model designed to score credit risk through “non-traditional” data obtained from various data vendors. This, the company claims, will make credit easier for the nearly 25% of the population that either has no credit file or too little information to benefit from traditional scoring models. The kinds of accounts covered in what Fair Isaac calls the FICO Expansion Score include deposits with a bank, records with payday lenders, and purchase payment plans.

One example of data that could either help or hurt you in obtaining a good expansion score is your banking history. ChexSystems is a consumer reporting agency that compiles information and issues reports about banking. If you have a negative entry in your ChexSystems report, it could be detrimental to your score. If this is a concern, you can check your ChexSystems report free once every 12 months. www.consumerdebit.com/consumerinfo/us/en/index.htm

Other companies also allow consumers to build a good history through non-traditional payments like rent and utility payments. One such company is Annapolis, Maryland, based PayRentBuildCredit. www.prbc.com. Another is First American Credco, www.credco.com.

Can I elect to have a lender use the expansion score rather than my credit history?

Expansion scores cannot be used as an alternative to scoring your credit report. If negative information in your credit report results in a low score, you cannot avoid this by selecting an expansion score. Again, the expansion score’s goal is to allow lenders to make credit offers to consumers who don’t have a traditional credit history. Like the traditional scoring models, the expansion score seeks out consumers with a good payment history.

For more on FICO expansion scores, see www.ficoexpansionscore.com/Content/FAQs.aspx.

As a recent graduate, how do I establish good credit?

Start small, perhaps with a credit card secured by your bank account. Make payments consistently on time. And, do not use all available credit. In fact, try to keep your use of available credit under one half the limit.

Will my score increase when my credit limits go up?

Not necessarily. Scoring models take into account how you use your available credit. Maxing out your credit cards or using all the available credit will deduct points from your score. The amount of credit you have available is not a scoring factor.

7. Scores for Sale ñ Proceed with Caution

Despite the shroud of secrecy that once surrounded credit scoring, the market for scoring products is now big business. A simple Internet search using the words “credit score” reaps millions of sites. Many of these sites sell packages of credit products that can include not only credit scores but credit reports, credit monitoring services, and identity theft insurance. Some searches may even lead you to fraudsters whose aim is not to sell you a credit score but rather to steal your personal information.

What is the best way to order my score?

The best way to purchase your score is through one of the national credit bureaus.
The national bureaus are:

* Experian, www.experian.com
* TransUnion, www.transunion.com
* Equifax, www.equifax.com

You can also purchase your score if you order your free credit report through the official online source established for this purpose. www.annualcreditreport.com/cra/index.jsp

The credit bureaus also offer a stand-alone score. You may purchase an educational score, now required by FACTA, or the official FICO score through the credit bureaus. You can also purchase your FICO score through www.myfico.com. Scores purchased through the Fair Isaac site come only as a package, requiring the additional purchases of credit reports or monitoring services.

How will I know the score I purchase through a credit bureau is my FICO score?

The three credit bureaus market FICO scores under the names.

Equifax Beacon
Experian Experian/Fair Isaac Risk Model
TransUnion Empirica

If the score you receive does not come with one of the above captions, you may have purchased an educational score which should come accompanied by the notice discussed in Part 2. It is not yet clear whether the bureaus will continue to offer the FICO branded scores now that they’ve joined forces to create the VantageScore. Equifax, for one, continues to offer its Beacon score as of this writing.

What is the harm in ordering credit reports and scores through an alternative web site?

There is only one official site for free credit reports, and that is www.annualcreditreport.com. (For more on the “official” web site, see the FTC’s information on your right to free annual reports. www.ftc.gov/bcp/conline/edcams/freereports/index.html)

Web sites you access through a search of such terms as “free credit reports” or “free credit scores,” may end up costing you money for products you neither need nor want. In the worst case, sites may actually be a fraud designed to steal your personal information.

For more on fake web sites, see the FTC’s alert, Fake Credit Report Sites: Cashing in on Your Personal Information , www.ftc.gov/bcp/conline/pubs/alerts/fakealrt.htm. See also the report Call Don’t Click by the World Privacy Forum. www.worldprivacyforum.org

8. Tips for Improving Your Score

* Monitor your credit report and dispute errors. Errors in your report will usually translate into a low score.
* Pay your bills on time even if it means you can only pay the minimum amount due.
* Low balances are a positive factor in scoring models. Don’t use all your available credit.
* New credit applications can detract from your score. Even an application for a department store card can lower your score. Multiple applications can have a devastating effect on your score, especially around the time you are shopping for major purchases like a car loan or mortgage.
* Old accounts (even those you haven’t used for a long time) can help your score. Scoring models look at not just how to use credit today but also how long you have used credit.
* Consolidating balances or moving debt around may make for one easy payment, but this can have an adverse effect on your score. Shuffling of balances could be especially harmful to your score if you close established accounts and open new accounts to consolidate your debt.
* Ask your lender what scoring model it uses. With new scoring models like the credit bureaus’ VantageScore, it is easy to get confused. A number score alone will not tell you where you stand.
* Know the going interest rates. Current rates for mortgages, car loans, and other consumer credit are published in daily newspapers or can be found online at such sites as www.bankrate.com. If you have a good credit score but are not offered a good interest rate, ask questions, negotiate, or shop elsewhere.

Your Credit Score: How It All Adds Up
By Privacy Rights Clearinghouse

Will checking your own credit report hurt your credit score?

When your credit is checked, this creates what is known as an “inquiry.”

There are two types of inquiries on credit reports:

* A Soft Inquiry
* A Hard Inquiry

When you check your own credit report, this is known as a “soft” inquiry and it will not affect your credit score whatsoever. You can check your credit all you want and your score will not be impacted.

Checking your FICO credit score or pulling your own credit report does not hurt your credit rating. The credit scoring system is set up so that inquiries made by a consumer checking his or her own credit score or credit report do not count in any way whatsoever towards lowering or raising one’s credit score.

When you apply for credit, whether it’s a mortgage or refinance, car loan, credit cards, or any of a number of applications for financing, this creates what is knows as a “hard” inquiry and this will lower your score slightly. Too many different credit applications over a short period of time can lower your credit score significantly, so don’t over-apply for credit.

One other note, if you fill out several credit applications for the same purpose over a short period of time, a mortgage for instance, this will normally be treated as a single inquiry–not multiple inquiries.

Credit inquiries made by credit card companies or mortgage lenders checking your credit report to send you pre-approved offers do not count either. If they did, every American would have a very low credit score.

However, if you respond to those offers, and the credit card company or mortgage lender pulls your credit report to do a more thorough investigation, it does count. It also counts every time you apply for any sort of financing, housing, insurance, employment, etc., and your credit report is pulled. How much does it affect your credit score? Each credit inquiry can lower your score by five points.

Five points for each credit inquiry sounds harsh, and it would be detrimental to someone who applied for many mortgage loans with many different mortgage lenders. However, the FICO scoring system counts multiple inquiries made in a 14-day period as just one inquiry, and all inquiries made within 30 days of the credit score being calculated are ignored. Therefore, if you are shopping for a mortgage loan, you should do all of your applying with various lenders within the same week to protect your credit score.

Does Checking Your Credit Affect Your Score?
By Liz Jones

When you apply for credit, the merchant or financial institution checks your credit report to see if you are a good credit risk. The credit bureaus call these checks inquiries, and they decide if these checks should affect your credit and, if so, how.

Facts
When a company checks your credit for a loan, it has a negative impact on your credit score. However, if you apply for credit only occasionally, the impact is minimal; your score may be lowered only by a few points. Checking your own credit does not have an impact on your credit score.
If you see inquiries on your credit record from companies you don’t recognize, these inquiries don’t have an impact on your credit score. These inquiries are from companies who send out pre-approved credit cards. They check your credit to see if you meet the overall guidelines for obtaining a credit card from their company, which is why you see the inquiry. But because you didn’t request the line of credit, these inquiries don’t count against your credit score. Only the inquiries you generate by applying for loans or lines of credit affect your credit score.

Types
There are two types of credit checks: soft and hard. When you check your credit report to make sure there are no mistakes, that’s called a soft check, and it does not affect your credit score. You should check your credit report often to make sure it accurately reflects your credit history. A hard credit check is when you request a loan or a line of credit from a company.

Significance
Because applying for a loan results in an inquiry on your credit and lowers your credit score, you should apply only for loans you need. If you are buying a new home or car or are applying for student loans, you should shop for the loans within a certain time frame. The credit bureau understands that you need to compare rates to get the best deal on a new home, car or other major purchase, so the multiple inquiries for one purpose are counted as one inquiry.
For example, if the credit bureau sees that five mortgage companies checked your credit over a period of 30 days, the bureau assumes you are applying for a new home loan and will count this as one inquiry. Make sure to do your loan shopping within a 30-day period to avoid lowering your credit score.

Benefits
If you understand that credit card inquiries negatively impact your credit score, you might think twice before applying for that credit card you don’t really need. Without this check in place, some people might take all the credit cards they’re offered and not have he credit they need when it’s time to buy a new car, home or other major purchase.

Warning
Many department stores and other companies entice people to apply for their credit cards by offering free gifts or a percentage off that day’s purchases. Unless you need the department store credit card, avoid applying for credit to get the gift. Frequently applying for credit cards makes the credit bureaus think you are trying to obtain a lot of credit, and this will lower your credit score even if you do not use the credit cards.

The FHA issued a new policy on May 11, 2009 regarding the 2009 First Time Homebuyer’s Tax Credit and down payments on FHA loans. For a time after the intitial press release from the Department of Housing and Urban Development, it appeared that home buyers interested in FHA mortgages could get a short-term “bridge loan” to let them take advantage of their 2009 First Time Homebuyer’s Tax Credit. This would let FHA borrowers use the loan as a down payment on their homes. But since the initial May announcement, the rules have been revised again and much confusion was the result.

In short; the 2009 First Time Homebuyer’s Tax Credit, known to some as the Obama Tax Credit or the Obama First Time Homebuyer’s Tax Credit, lets those buying their first primary residence to get a tax break up to $8000. The tax break can only be claimed for purchases made in the 2009 tax year and is paid after the home buyer has filed an income tax return for 2009.

The first round of new FHA rules appeared to let banks offer bridge loans to borrowers so they could use their IRS money as a down payment on an FHA home loan. But further investigation into the rules uncovers a law forbidding banks from offering down payment assistance; these bridge loans could be interpreted as down payment assistance even though the loan is simply to cover the amount of an income tax refund the home buyer would get anyway.

Additional guidance was issued by the FHA at the end of May. The revised rules state FHA home loan applicants can still apply for these bridge loans, but the loans cannot be used to meet the FHA’s minimum 3.5% down payment. The money can be used for other expenses or be paid on top of the required down payment; and putting an additional $8000 down on your FHA mortgage beyond the required 3.5% is a good thing. Imagine the reduced interest payments and the money saved over the lifetime of the loan. FHA loan applicants are also allowed to use the bridge loans to pay for closing costs, up front interest payments or other expenses related to closing the deal on an FHA home loan.

For FHA lenders and borrowers alike, May was a very confusing month, but the FHA seems to have sorted out the mess. The rules are clear now–bridge loans are permitted, but the FHA’s required down payment must still come from the borrower’s own funds. According to the Department of Housing and Urban Development’s official site, FHA guidelines are designed to allow people interested in an FHA mortgage to cut their up front costs while requiring the borrower to have a personal investment in the property bought with an FHA home loan.

“In addition to the borrower’s own cash investment,” a press release at HUD.gov states, “FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today’s action permits the first-time home buyer’s anticipated tax credit under the Recovery Act to be applied toward the family’s home purchase right away.”

For more information on how to apply for a bridge loan towards your expected 2009 First Time Homebuyer’s Tax Credit, ask your FHA-approved lender to explain the process.

When you decide to apply for an FHA refinance loan, your lender may have a look at your credit rating. This is a source of stress for many, especially those who need to refinance because they risk default or foreclosure on ARM loans or non-FHA loans with variable interest rates.

Did you know that FHA refinancing loans are more forgiving when it comes to your credit rating? Most refinancing programs designed to save homeowners from foreclosure take into account what’s happened to thousands of American homeowners during the housing crisis. Your credit rating may be affected by current conditions, but if you have an overall pattern of reliable payments, you shouldn’t worry about being disapproved for an FHA refinance loan.

Do you have a more serious problem on your credit report? The FHA loan approval process for refinancing does take into account extenuating circumstances such as an on-the-job injury, illness or other situation that may have prevented you from paying on time. Don’t assume you aren’t qualified just because you have a period of non-payment or collections against you.

Come to the FHA refinance table prepared with a written explanation of what happened to damage your credit rating and submit it along with your paperwork. That can make quite a difference when the loan officer examines your past credit history and compares it to your current circumstances. If you need such a letter, be sure to include any supporting documentation including hospital bills from an extended stay or other evidence that supports your claim.

FHA lenders are quick to point out that a few missed bill payments on a credit report don’t necessarily indicate you are a bad credit risk, but one area where missed payments creates the most trouble for borrowers is on the mortgage itself. You must be current on your existing home loan. There must be no missed payments for 12 months prior to your FHA refinance loan application.

This “paid up” requirement also applies to what bankers call “judgments” and other collection activity against you. If you are not current on your other bills or have collection agencies to deal with, take steps you need to get caught up before filling out your FHA Refinance application. You don’t have to be paid in full, but you do need to be in agreement with your creditors on repayment.

Like any VA home loan, FHA mortgage or refinancing application, it’s important to prepare your credit as much as possible before you apply. In addition to your credit rating check, an FHA mortgage lender will also need to check your debt-to-income ratio.

You can take steps to reduce your debt-to-income ratio by paying off small amounts on credit cards and closing credit card accounts you don’t need. Don’t apply for other lines of credit when you are trying to get an FHA mortgage refinance application approved. Any potential debt may count against you when applying for a mortgage; keep that potential debt as low as possible for best results. Start work on your debt-to-income ratio the moment you decide to apply for an FHA refinance option. The sooner you start cutting down the debt, the better.

FHA refinance loans are worked more personally than other home loan products. Work closely with your loan officer, and never assume that you aren’t qualified—give yourself a chance to work with the system and you could find yourself in more affordable mortgage payments and a lower interest rate in no time. If you want to get into an FHA refinance loan but your current lender is not responsive to your needs, you don’t have to refinance with the same bank. You can always use a new lender willing to work with you.

Whether you are applying for an FHA loan to get your first home, seeking an FHA cash-out refinancing mortgage or an FHA refinancing loan, there are certain rights and protections you should be aware of before closing the deal.

The most important right you have in any financial transaction is to know the specific terms and conditions of the paperwork you’re signing. If you need help understanding the terms of your FHA home loan, HOPE for Homeowners refinancing, an FHA refinancing loan or any other product, ask your lender to explain the terms in as much detail as you need.

You should never be rushed into signing an agreement for an FHA home loan. Do you fully understand the conditions of your FHA mortgage? There are a number of typical questions many ask:

* Who pays the closing costs?

* What is the total amount due every month on my FHA mortgage?

* What are “points”?

* What happens if my FHA mortgage payment is a day or two late? Is there a grace period?

* What may cause my FHA mortgage to go into default? Foreclosure?

* What is the actual cost of my FHA home loan above the amount I am borrowing for the house?

You should have the answers to all these questions and more. Your lender can assist you, but you may need to make an appointment to discuss the answers fully.
In addition to making a fully informed decision about your FHA home loan, you should also be aware of your rights under the Fair Housing Act. No homebuyer can be refused a loan or purchase on the basis of race, creed, or other discriminatory practices.

Most people understand these basic rights under the Fair Housing Act, but there are other rights which apply to all borrowers, whether you apply for an FHA-approved home mortgage or any other type of loan. Did you know it’s against federal law to prohibit reasonable modification of an existing home to accommodate disabilities? A housing provider or homeowner’s association that tries to block or disapproves reasonable structural repairs or modifications is in violation of HUD and Department of Justice laws.

If you have been approved for an FHA cash-out refinancing loan to make your home wheelchair accessible, for example, you can’t be denied any reasonable alteration to create that accessibility. Homeowner’s associations that have covenants restricting such modifications are in violation of the law.
Before you decide to apply for an FHA mortgage or FHA refinancing loan, there are questions to ask if modifications or repairs are needed to make a home accessible.

* If you pay for the modifications yourself, how will the cost affect your debt-to-income ratio?

* How does the modification affect the resale value of the home?

* Does the home need to be reappraised after accessibility modifications are made?

Not all FHA loan products are affected by these kinds of modifications, but some are. If you have an FHA Hope for Homeowners refinance loan, changes to your property may affect the resale value. When you decide to sell or refinance, the amount of money you pay back to the government under the HOPE equity sharing program may change depending on how such modifications changed the resale cost.

If you are applying for an FHA cash-out refinancing loan to fund your modifications, you may be turned down if you don’t meet the right income or debt-to-income ratio guidelines. In these situations, the reasons for the loan are not the issue, but rather the eligibility for the FHA loan. There’s no discrimination present if you don’t meet the requirements; credit counseling and assistance programs are available to help borrowers assess their creditworthiness before applying for an FHA cash-out refinance loan.

Reputable lenders don’t discriminate, but sometimes the actions of a few can create the impression that there’s no recourse regarding practices or activities that violate the Fair Housing act. If you suspect your rights have been violated, contact the Department of Housing and Urban Development at 1 800 669 9777, and the Department of Justice at 1-800-896-7743.

When first time homebuyers start looking for a house to purchase with an FHA home loan, there are many details to sort through; appraisals, interest rates, closing cost considerations and much more. One important factor in the cost of any home that should not be ignored? Property taxes.

When you buy a home with an FHA loan, many of your costs are immediately explained. Your closing costs and FHA mortgage interest, for example—you’ll know what these expenses can add up to before you sign on the dotted line. But property taxes shouldn’t be very far down your list of concerns; you should know what your tax liabilities are on any property before you commit to the purchase. The amount of property tax you pay might not be a deal breaker on the house of your dreams, but property taxes should be considered in any budget.

HOW DO I LEARN WHAT MY PROPERTY TAX LIABILITY IS?

When you are pre-approved for an FHA home loan and looking for a property to buy, you can get a very good idea of what your potential property tax bill might be simply by checking the listing on the property you want to view. Many times last year’s tax information is included along with other important information on the real estate listing. If it is not published, ask the seller to give you the amount he or she paid last year or have them show you their property tax bill. It’s important to understand that taxes do change; last year’s payment might not be indicative of this year’s liability. A bit of research will show whether local amendments or recent legislation might have raised the amount you could owe this year on a given property.

DO NEW HOMES HAVE HIGHER PROPERTY TAXES?

Older homes often have lower property taxes than newer ones. The trade off with buying an older home with an FHA loan often comes with repairs and upkeep issues. How old is the roof on the home you want to buy? Do you know how much it will cost to repair or replace the roof when the time comes?
Buying an older home as a fixer-upper is great for those who have the skills to do so, but if you need to hire a team to do the work for you, you may wish to consider the pros and cons of buying an older home versus using your FHA home loan to buy a newer, less maintenance-intensive property. The costs of upkeep might offset any savings you find in property taxes with some older homes.

ARE THERE ANY OFFSETS TO MY PROPERTY TAXES?

Many people new to purchasing a home are surprised to learn they can deduct the interest from the FHA mortgage on their federal income taxes. The amount of money you spend on property taxes may or may not be offset by such deductions—it all depends on your specific situation, but you can learn a lot by asking a real estate professional about how to help yourself at tax time by taking the right deductions allowed by law connected to your FHA mortgage and status as a property owner.

Property taxes should always be figured into the final cost of purchasing a home. Know how those taxes can affect your bottom line–prepare for them in the same way you make allowances in your budget for the primary amount of your FHA loan, the interest, and any mortgage insurance you might carry. Divide the total amount of your property tax liability by 12 and save that amount of money each month to prepare for tax season.

Who Qualifies for the Obama Mortgage Refinancing Program?

There has been a lot of press on what many people call the Obama Mortgage. But what IS an Obama Mortgage and who is eligible?

In early 2009, the Obama administration announced a program called Making Home Affordable. This program is expected to help nine million homeowners keep their homes and avoid foreclosure through refinancing and modified loans designed to lower monthly mortgage payments.

The Obama mortgage is not part of the Hope for Homeowners program started in 2008. Making Home Affordable does offer hope for homeowners in need of mortgage rescue, but there are specific conditions for the program. Do you wish to apply for refinancing under Making Home Affordable?

* You must be current on your mortgage payments. Those who hope to take advantage of programs under a 2008 or 2009 housing rescue bill soon learn that staying current on your mortgage is often one of the first requirements. That’s one reason financial advisors tell people not to default or stop paying their mortgages. To qualify for an Obama Mortgage you must not have been more than 30 days late on any mortgage payment in the last 12 months.
* Your home must be your primary residence. For those in need of homeowner’s relief with FHA loans, this is a very familiar condition, but for those in conventional loans, the “primary residence” requirement may be new. Those who don’t live in the building they seek refinancing for will not be approved for an Obama mortgage.
* Your home must be financed with either a Fannie Mae or Freddie Mac loan. If you aren’t sure if your home loan meets this requirement, contact your loan officer or call 1-800-Freddie or 1-800-7FANNIE to learn more.
* Normally, home owners with loan-to-value ratios above 80% are not eligible for refinancing, but Home Affordable gives homeowners affected by such loan-to-value ratios a second chance; you may be eligible to refinance into lower mortgage rates and stable interest rates if you qualify. The Home Affordable refinance program’s official site asks, “Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?” If so, you qualify for refinancing rather than loan modification.

If you meet these conditions, your next step should be to contact your loan officer to ask about starting the application process. You will need all information about your current loan, any second mortgage plus other lines of credit like credit cards or personal loans. You’ll also be asked to supply your most recent tax documents as part of the process of applying for an Obama mortgage refinancing package.

Legislation is pending to help those who have FHA and VA loans get similar homeowner relief as those who have Fannie Mae and Freddie Mac loans under Home Affordable, but as of now those with FHA and VA loans should ask their lenders what alternative options are available since the Obama mortgage is not designed for FHA and VA borrowers.