How is my credit judges by lenders?

Credit scoring is a system that creditors use to help determine whether to extend you credit like a home loan. Information about you such as your bill-paying history, the number and type of open credit accounts you have, number of late payments you have, collection for now payment actions, total outstanding debt, and the total age of your open accounts, is collected from your credit report. Creditors compare this information to the credit reports of other consumers with similar profiles. The credit scoring system then awards points for each factor that helps predict who is most likely to repay a liability like your home loan or credit cards. A total number of points — a.k.a. your credit score or your FICO — helps predict how creditworthy you are, that is, how likely it is that you will repay a home loan and make the mortgage payments when they are due.

The most widely use credit scores are called “FICO” scores, which were developed by the Fair Isaac Company, Inc. Traditionally credit scores fall between 350 (very high risk) and 850 (low risk – perfect credit).

Because the accuracy of your credit report is extremely important, it is very important to make sure it’s accurate before you submit a credit application for a home loan. To get copies of your report, you can contact the three credit reporting agencies directly at:

Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800

These agencies may charge you a small amount for your credit report.

You are entitled to receive one free credit report every year from each credit reporting companies – Equifax, Experian and TransUnion.

This free credit report will probably not contain your actual credit score number, but is can be requested through the following website: https://www.annualcreditreport.com

What can I do to improve my credit score?

Credit scoring models are complex and often vary among each of the creditors, as well as for the different types of credit you have open. If one of these factors change, your score may change, but actual improvement depends on how that factor relates to all other factors considered by the credit reporting model. Only the actual creditor can explain what might help to improve your score under the particular model they use to evaluate your credit. We can help you through this process.

Credit report scoring models generally evaluate the following in your credit report to determine your scores:

• Have you paid your bills on time? Payment history typically is the most significant factor to your credit score. It is likely that your credit score will be affected negatively if you pay your bills late, if you have an account that’s been referred to a collections agency, or if you have declared bankruptcy.

• What is your outstanding debt? All credit scoring models evaluate the total amount of debt you’re using compared to each of you credit limits. If the amount of debt you owe is close to your total credit limit that is likely to have a negative effect on your credit score.

• How long is your credit history? Credit models also consider the length of time your credit lines have been opened. An insufficient credit history may lower yout score, but that can also be offset by factors, such as making timely payments and keeping low balances.

• Have you applied for new credit recently? Credit scoring models consider whether you have applied for new credit recently by looking at “inquiries” on your credit report. If you apply for too many new credit accounts in a short amount of time that may negatively affect your score. However, not all credit score inquiries are counted against you. Inquiries by creditors who are monitoring your account or looking to make “pre-screened” credit offers are not counted against you.

• How many and what types of credit accounts do you have? It is generally a good thing to have established credit accounts, but too many credit card accounts may have a negative effect on your credit score. Plus. many credit models consider the type of credit accounts you have open, for example, under some models, loans from finance companies may negatively affect your credit score.

To improve your credit score, concentrate on paying all bills on a timely basis, try to pay down outstanding balances to less then 30% of the credit limit, and do not take on any new debt during the home loan application process.