Archives for October 2018

What Makes Up a Credit Score??

How Is Credit Calculated

 

A credit score is an extremely important financial tool. It provides access to the financing you need in order to buy a car, a home, or pay for college tuition, among other things. Since higher scores result in lower costs, it’s vital to understand the factors involved in calculating your score. Here are the five elements that make up a credit score, in order of importance:

Payment History: 35% impact. Paying debt on time has a positive impact. Late payments, judgments, and charge-offs have a negative impact. Delinquencies that have occurred in the last two years carry more weight than older items.

When applying for a mortgage, every point in your credit score can make a big difference. So don’t make any major financial or credit decisions – even paying off an old debt or delinquency – without first discussing it with your mortgage professional.

Outstanding Credit Balances: 30% impact. This factor marks the ratio between the outstanding balance and available credit. Ideally, consumers should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when planning to enter into a loan transaction within 3-6 months.

Credit History: 15% impact. This marks the length of time since a particular credit line was established. A seasoned borrower is stronger in this area.

Mix of Credit Types: 10% impact. A mix of auto loans, credit cards, and mortgages is more positive than a concentration of debt from credit cards alone.

Inquiries: 10% impact. This quantifies the number of inquiries (or requests for credit) that have been made on a consumer’s credit history within a 6-12 month period. Each individual inquiry – up to 10 – can hurt your credit score by as much as 5 to 30 points. Any additional inquiries thereafter will not affect your credit score.

In other words, don’t start the loan process until you’re ready to act. Otherwise each individual credit inquiry could cost you. However, scoring models have now been adjusted to count multiple “hard” inquiries within a 45-day period as a single request. So, when you’re ready, your credit will be too.

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What does disputing a tradeline do to your Credit Score?

credit scores

Your credit score will open doors for you when you are in the need to borrow money and your score will determine the cost of that money.

So protecting it is extremely important.

Our topic of discussion today is to review Disputing Credit and how it affects your score and your ability to move forward in purchasing a home.

In the past, disputing a debt on a credit report was used to by-pass a negative reporting.  When you dispute a debt on your credit report, the algorithms skip over that debt and does not include the history of that debt into your actual credit score.

This was discovered and now in many cases, disputes on a credit report must be removed in order for underwriting to discover the actual credit score as the history of that debt must be included in the overall evaluation of the loan applicant.

There is a systematic way of getting this information corrected:

1.)   Get the dispute resolved by working with the creditor and obtain a letter from them proving that the derogatory information should be removed.

2.)  In many instances, debtors will not remove the dispute and as a consumer wanting to obtain a loan, you need to take steps to remove the dispute, even if you still don’t agree with the decision of the creditor.

Here is some information provided to us by a Credit Report company called Cisco Credit.  They were  assisting us in directing a consumer of what steps to take to remove a dispute from his file that his creditor refused to remove.  This borrower wanted to obtain a home loan and could not proceed due to the dispute filed on his credit report:

Here’s what I recommend: have your borrower go to www.annualcreditreport.com and pull their credit from each of the 3 bureaus (it’s free once per year)…once they do this they can request that the dispute comments be removed from those creditor tradelines…they will be given a unique report/ID number from each bureau…have them save this as it will allow them to call each of the bureaus at a number they will provide to check progress. At the same time they will also need to contact each of the creditors showing a dispute to be removed and tell them they no longer wish to dispute the account(s). 

Please note if any of the disputes are with a collection agency or an account that has been charged off, the creditor might not remove the dispute unless it is first paid off.

In today’s economic enviroment, it is really important for you to prepare for your home purchase with a plan of action.  Choose your lender carefully and ensure that they are able to guide you to your plan.

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