This is a common concern out there about having your credit reportpulled and whether or not this will hurt your credit score. There are certain inquiries that affect your overall score, and in this article we will discuss what really affects your score. There are two types of inquiries on your credit report, and they are called a soft inquiry and a hard inquiry. Here are the breakdowns.
Hard inquiries – this could affect your FICO score.
• Credit report pulls by a mortgage company or a bank
• Application for a credit card
• Application for a car
• Application for a bank loan
Soft inquiries – This does not affect your FICO score • Pulling your own credit report
• Having a creditor whom you already have credit with pull your credit report
• Credit checks by prospective employers
How interest rate shopping affects your score. When looking for auto or mortgage loan, this can trigger multiple credit inquiries. To compensate for this the score models allow multiple inquiries within a 30 day period before it scores you. The score model looks for inquiries within that 30 day period and only counts it as one inquiry.
How much could your scores drop as a result of hard inquiries? In some cases a hard inquiry will not affect your score at all, and in some cases a hard inquiry could lower your score around 5 points. If your credit is in good standing as far as you know, you really don’t have anything to worry about. If you are getting ready to make a purchase or have been turned down for credit, go ahead and see where your credit scorestands. FICO recommends that your check your credit often just in case there is something on there that could hinder a credit approval.
If you decide to use a lending institution, your ability to buy will be based on your credit score. Do you currently know yours? Here is some advice from Stephanie AuWerter, Editor of Smartmoney.com, on learning and improving your score.
During times like these, a good score should be top priority. Because of the current and ongoing credit crisis, lenders have got tough in credit score requirements. If you are looking for a mortgage, credit card, small business loan, the bar has been raised. If you want to get the best rates your FICO scores needs to be high. According for Fair Isaac credit scores range between 300 – 850 and you should shoot for a 750 or higher. The great news is you can improve your credit score fairly quickly. The first step is to know where you stand, and you can pull a copy of your FICO score at CreditScoreQuick.com
One of the worst things you can do to devastate your credit score is to be lat on a payment. If for some reason you pull your credit report and there is a late payment you knew nothing about, you usually can call to get the late payment removed if you are a good paying customer. If you were actually late, you can still call and ask them to remove the late payment, but of course they have no reason to re-move it. But it does not hurt to ask, you have nothing to loose.
You should also pay down yourcredit carddebt. Credit card debt hurts your score. FICO does not like to see your credit card debt reaching its credit limit. This can be a little tricky because some credit card companies are lowering credit lines for some customers. According the Fair Issac you want to keep your credit card balances below 30% of your total credit line. So pay down your debts.
Don’t cancel credit cards you don’t use. Credit cardsthat have no balances actually are helping your fico score. Having credit cards with credit lines help your credit score, and it does not hurt to charge occasionally on it and pay it off that month.
Finally correct credit report mistakes. Almost 80% of credit reports have mistakes on them, 29% of which are serious enough to result in a credit denial. So pull a copy of your credit report with credit scores and give it a good review. Get a copy of your credit report at http://www.creditscorequick.com/. If you find a mistake on it the bureaus has 30 days to remove it if the credit bureau finds that the dispute is accurate.
We all know credit scoresare pretty much the ticket to a lot of things these days. This is a question that has two sides to it. Over the years most credit repair companies will tell you not to pay off collection accounts because it gives an updated collection to the credit bureaus. I will be the first to tell you, that if it’s a new collection you are better off settling on the collection and asking for a letter to delete from all 3 credit bureaus. There is also a trick of the lender community, where we ask you to pay off a collection and get a a letter from the creditor reporting the collection, Once you provide the letter we go to our credit reporting company and do what is called a rapid rescore. What this entails is we get the credit bureaus to update the status of a collection from balance being owed to “paid in full” or “settled” depending on what was negotiated.
Once a collection is updated here is what typically happens. 1. Your score will increase depending on how many accounts you paid off
2. The status of the account will change
3. Balance being owed will be $0
So the answer is yes typically when you pay off collection accounts your credit score will increase. We have been doing this for years, and it works. The reason is you are changing the status of the account from balanced owed to either settled or paid in full. This is the secret that most don’t know. Why do credit repair companies tell you not to pay off collections, I personally believe it’s because they don’t have access to do rapid rescore process like mortgage companies do.
In some cases when you pay off collections your credit score could drop, but will eventually go up. There is no miracle when it comes to repairing your credit report, it is always better to pay off your debts you owe though. Typically when you pay off a collection your credit scores will increase. Just remember as you are working on paying off old bad debt make sure you are not late on anything. If you are late on a obligation that reports to your credit report, you are defeating the entire purpose of increasing your credit scores. Late payments will drop your credit score between 100 to 150 points.
If you are uncertain what is on your credit reportgo ahead and get a copy of your credit reportToday.
If your credit score is low these days it might be pretty difficult to get financing for a mortgage. There are loans out there that don’t have credit score requirements, but the banks that provide the financing have their own internal requirements. For example, FHA loans which are government insured loans don’t have a credit score requirement to insure the loan, but the bank that underwrites the loan will have their own internal credit score requirement to even approve the loan.
What is FHA ? Federal Housing Administration is what FHA stands for. This is a department of Housing and Urban Development (HUD) that insures loans underwritten by banks. Banks are more anxious to provide FHA financing due it being less risk to the bank. If a borrower forecloses on the FHA loan HUD buys a portion of the loan back. So in all reality this loan is a lot more attractive for banks to lend with.
Credit Scores for FHA mortgage With all the banking rules changing currently, FHA is still the strongest and most aggressive loan out there. The caveat is the banks have gone to credit score requirement for FHA loans. The current standard is a middle credit score of 580. I know HUD is really concerned about this but they don’t underwrite the loan, the banks do. The reason for this credit score requirement is because there has been a pattern with borrowers below a 580 credit score. These types of borrowers are foreclosing on their homes. Typically when banks portfolio their own loans they monitor certain foreclosure types. If there are too many foreclosures of one particular type of borrower, they raise the bar on underwriting requirements. So with this being said you need at least a 580 middle credit score to get FHA financing these days.
So if you are wondering what your credit score really is, you might consider pulling a copy of your free credit score report. That is the most proactive way to determine your buying power. It also is a great way to see if there are any incorrect information that could be dragging down your credit score report.
Fico scores are calculated from different data within your credit report. This information is grouped into five categories. The Chart below will reflect this as well as the percentage of importance for each category.
These percentages of these categories are for the purpose of the general population. For example someone that is new to the credit scène these percentages may not apply.
Payment History
• Number of accounts paid as agreed
• Presence of negative Public Records(Judgments, bankruptcy, suits, liens, wage attachments, etc ( Collections, and/or delinquency(past due items)
• Severity of delinquency( how long past due)
• Amount past due on delinquent accounts or collection accounts
• How much you’re past due on accounts or collections.
• How many collections you have
• Account payment information on particular accounts (installment loans, credit cards, retail accounts, finance company accounts, car notes, mortgage, etc…)
Length of Credit History
• Time since account activity
• Time since accounts opened
• Time since account opended, by type of account
New Credit
• Time since account was open, by credit type
• Time since credit inquiry
• Number of recently opened accounts, and proportion of accounts recently opened by account type.
• Re-establishment of credit after recent credit problems
• Number of recent credit inquiries
Amounts Owed
• Proportion of installment loans still owed, proportion of balances to original loan amount on certain installment loans
• Number of accounts with balances
• Amounts owed on specific types of accounts
• Amount owed on accounts
• Lack of specific types of credit balances
• Proportion of credit lines used (proportion of balances to total credit limit on certain types of revolving accounts
Types of credit used
• Number of (prevalence, presence, and recent information on ( different account types such as credit cards, retail accounts, mortgage, installment loans, and consumer finance accounts.
*Please take note
Your FICO score takes into consideration of all these variables discussed.
No one piece of information or factor will determine your score alone.
The importance of any factor depends on your over all credit history.
It is really hard to single out any other factor over another, since all factors take part in the overall scoring process. What is important is the mix of information being reported within your credit report.
Your FICO score only looks at information within your credit report. However lenders look at other information outside this report to also make a credit decision.
Example:
• Work History
• Salary
• Rental History
• Kind of credit you are requesting
Your score considers both negative and positive information on your credit report. Late payments will lower your credit score, but establishing or re-establishing a good payment history will increase your credit score.
Need Credit or Insurance? Your Credit ScoreHelps Determine What You’ll Pay
Ever wonder how a lender decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you’d be a good risk for credit cards, auto loans, and mortgages. These days, many more types of businesses — including insurance companies and phone companies — are using credit scores to decide whether to approve you for a loan or service and on what terms. Auto and homeowners insurance companies are among the businesses that are using credit scores to help decide if you’d be a good risk for insurance. A higher credit score means you are likely less of a risk, and in turn, means you will be more likely to get credit or insurance — or pay less for it.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, wants you to know how credit scoring works.
What is credit scoring? Credit scoring is a system creditors use to help determine whether to give you credit. It also may be used to help decide the terms you are offered or the rate you will pay for the loan.
Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, whether you pay your bills by the date they’re due, collection actions, outstanding debt, and the age of your accounts, is collected from your credit report. Using a statistical program, creditors compare this information to the loan repayment history of consumers with similar profiles. For example, a credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how creditworthy you are — how likely it is that you will repay a loan and make the payments when they’re due.
Some insurance companies also use credit report information, along with other factors, to help predict your likelihood of filing an insurance claim and the amount of the claim. They may consider these factors when they decide whether to grant you insurance and the amount of the premium they charge. The credit scores insurance companies use sometimes are called “insurance scores” or “credit-based insurance scores.”
Credit Scores & Credit Reports
Your credit report is a key part of many credit scoring systems. That’s why it is critical to make sure your credit report is accurate. Federal law gives you the right to get a free copy of your credit reports from each of the three national consumer reporting companies once every 12 months.
The Fair Credit Reporting Act (FCRA) also gives you the right to get your credit score from the national consumer reporting companies. They are allowed to charge a reasonable fee, generally around $8, for the score. When you buy your score, often you get information on how you can improve it.
To order your free annual report from one or all the national consumer reporting companies, and to purchase your credit score, visit www.creditscorequick.com, call toll-free 877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P. O. Box 105281, Atlanta, GA 30348-5281. For more information, see Your Access to Free Credit Report.
How is a credit scoring system developed? To develop a credit scoring system or model, a creditor or insurance company selects a random sample of its customers, or a sample of similar customers, and analyzes it statistically to identify characteristics that relate to risk. Each of the characteristics then is assigned a weight based on how strong a predictor it is of who would be a good risk. Each company may use its own scoring model, different scoring models for different types of credit or insurance, or a generic model developed by a scoring company.
Under the Equal Credit Opportunity Act (ECOA), a creditor’s scoring system may not use certain characteristics — for example, race, sex, marital status, national origin, or religion — as factors. The law allows creditors to use age in properly designed scoring systems. But any credit scoring system that includes age must give equal treatment to elderly applicants.
What can I do to improve my score? Credit scoring systems are complex and vary among creditors or insurance companies and for different types of credit or insurance. If one factor changes, your score may change — but improvement generally depends on how that factor relates to others the system considers. Only the business using the scoring knows what might improve your score under the particular model they use to evaluate your application.
Nevertheless, scoring models usually consider the following types of information in your credit report to help compute your credit score:
• Have you paid your bills on time? You can count on payment history to be a significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it is likely to affect your score negatively.
• Are you maxed out? Many scoring systems evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it’s likely to have a negative effect on your score.
• How long have you had credit? Generally, scoring systems consider the length of your credit track record. An insufficient credit history may affect your score negatively, but factors like timely payments and low balances can offset that.
• Have you applied for new credit lately? Many scoring systems consider whether you have applied for credit recently by looking at “inquiries” on your credit report. If you have applied for too many new accounts recently, it could have a negative effect on your score. Every inquiry isn’t counted: for example, inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not considered liabilities.
• How many credit accounts do you have and what kinds of accounts are they? Although it is generally considered a plus to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many scoring systems consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your credit score.
Scoring models may be based on more than the information in your credit report. When you are applying for a mortgage loan, for example, the system may consider the amount of your down payment, your total debt, and your income, among other things.
Improving your score significantly is likely to take some time, but it can be done. To improve your credit score under most systems, focus on paying your bills in a timely way, paying down any outstanding balances, and staying away from new debt.
Are credit scoring systems reliable? Credit scoring systems enable creditors or insurance companies to evaluate millions of applicants consistently on many different characteristics. To be statistically valid, these systems must be based on a big enough sample. They generally vary among businesses that use them.
Properly designed, credit scoring systems generally enable faster, more accurate, and more impartial decisions than individual people can make. And some creditors design their systems so that some applicants — those with scores not high enough to pass easily or low enough to fail absolutely — are referred to a credit manager who decides whether the company or lender will extend credit. Referrals can result in discussion and negotiation between the credit manager and the would-be borrower.
What if I am denied credit or insurance, or don’t get the terms I want? If you are denied credit, the ECOA requires that the creditor give you a notice with the specific reasons your application was rejected or the news that you have the right to learn the reasons if you ask within 60 days. Ask the creditor to be specific: Indefinite and vague reasons for denial are illegal. Acceptable reasons might be “your income was low” or “you haven’t been employed long enough.” Unacceptable reasons include “you didn’t meet our minimum standards” or “you didn’t receive enough points on our credit scoring system.”
Sometimes you can be denied credit or insurance — or initially be charged a higher premium — because of information in your credit report. In that case, the FCRA requires the creditor or insurance company to give you the name, address, and phone number of the consumer reporting company that supplied the information. Contact the company to find out what your report said. This information is free if you ask for it within 60 days of being turned down for credit or insurance. The consumer reporting company can tell you what’s in your report; only the creditor or insurance company can tell you why your application was denied.
If a creditor or insurance company says you were denied credit or insurance because you are too near your credit limits on your credit cards, you may want to reapply after paying down your balances. Because credit scores are based on credit report information, a score often changes when the information in the credit report changes.
If you’ve been denied credit or insurance or didn’t get the rate or terms you want, ask questions:
• Ask the creditor or insurance company if a credit scoring system was used. If it was, ask what characteristics or factors were used in the system, and how you can improve your application.
• If you get the credit or insurance, ask the creditor or insurance company whether you are getting the best rate and terms available. If you’re not, ask why.
• If you are denied credit or not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information with the consumer reporting company. To learn more about this right, see How to Dispute Credit Report Errors.
The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
FHA loans are loans that are insured by (HUD) Housing Urban and Development. FHA loans have been around since the 1930’s right after the “Great Depression.” This was when 4 out of 10 households owned a home. (FHA) Federal Housing Administration is the savior for our current market just like it was back during the roaring 30’s.With FHA loans especially during a credit crunch like we are currently are in, you can rest assure banks are willing to be more lenient to approve credit challenged borrowers with FHA financing. The reason is FHA loans are insured by HUD, and if the borrower looses the home HUD will pay a claim to lender for the loss. FHA is the largest single insurer of loans in the world.
FHA Advantages.
• Lower interest rates, typically interest rates are lower on FHA loans with the banks since they are government insured loans
• Only requires minimum investment from borrower of 3% down payment, which can be eliminated by Down Payment Assistance. So essential you can get a 100% financing with FHA loans. Note: Requires Seller participation • If you have less than perfect credit you can typically can get a loan with FHA, they usually like to see 12 to 24 months clean credit reporthistory. You can even get a loan while in chapter 13 bankruptcy.
• No Credit Score Requirement
• Recent loan limits increased-varies from state to state; go here to find out. For example you can buy a home in the state of Texas with FHA up to $271,050. Depending on if your state is a high cost area; obviously this loan limit would be higher.
• Will allow alternate lines of credit if not good history is on credit report. Example: 1. Letter from any utility company stating you have been on-time with your payment history for that last 12 months.
2. 12 month payment history from car insurance company, cell phone company and even daycare will work.
If you are currently in the market to buy or maybe you feel like you need credit repair, what ever your direction is, getting a FHA loan is not as hard as you think. FHA gets people approved that may not get approved with other loan types. The first step is to examine where you are at with a lender and get the ball rolling. IN this current market some lenders are requiring you to either have a 580 credit scoreor higher. They will also allow no credit score but your interest rate is higher than current market rates. This is going on even though FHA has no credit score requirement; this is due to bad performance of loans below the credit score benchmark of 580.
We all know how important it is to have as high a Credit Score these days. Especially since your credit score is no longer a secret anymore. Divorce is all too common in today’s society, and when Divorce Decrees are drawn up, the attorney forgets to make sure debts that are joint accounts are only in the person’s name that is awarded that debt per the decree. Typically what the divorce decree will say is whom is awarded what debt. Here is how this is a problem.
How debts after divorce will affect you: Let’s assume while you were married you and your significant other had accumulated some debt that are joint accounts. This means that both of your social security numbers are attached to the obligations and its being reported to all 3 credit bureaus. So once day you both decide to get a divorce and the attorney works up a Divorce Decree like they normally do, which of course is the wrong way. Both of you go on your marry way, and the other party decided to be late on a obligation that is reporting in your name still. Guess what happens to your credit score. Your score just dropped 150 points. This is a common problem, and of course now it’s your problem even though you have a debt that was awarded to the other party per decree. Let’s assume it’s a house, and your ex decides to let the house go to foreclosure. Now you cannot buy a home for 3 years because you have a foreclosure on your credit report. So basically a divorce decree is a agreement between divorcing couples, it does not separate liabilities.
What you need to do so you’re Credit Score is not affected: Divorcing couples should never rely on the other spouse to pay bills that were awarded to them per Decree. This is a disaster waiting to happen. These type of issues need to be tackled up front so there is no issues once the divorce is final. If you have already made this huge mistake, my suggestion would be to go back to court and get these debts out of your name. If there is a house involved, I would recommend getting the house refinanced out your name or sold depending on the situation. Obviously if the spouse is behind on the mortgage they would not be able to refinance due to the credit situation. In a situation where the ex spouse is behind on the mortgage and its affecting your credit report, I would recommend going back to court and taking over the mortgage payment along with having the house awarded back to you. The solution to all of this is simple; make sure you don’t have debts in your name that gets awarded to ex spouse. Don’t let your ex spouse ruin your credit. If you have already made the mistake, I would recommend pulling a recent copy of your credit report with credit scores to make sure there is no damage done.
In Title 11 of the United States Code (the Federal Bankruptcy Code), there are four types of bankruptcy filings:
• Chapter 13 – Adjustment of Debts of an individual with Regular Income
• Chapter 11 – Reorganization
• Chapter 7 – Liquidation
• Chapter 12 – Adjustment of Debts of a Family Farmer with Regular Annual Income
The filing of your bankruptcy is determined by a person’s financial situation. Currently the most common filing is Chapter 7.
A debtor that is filing Chapter 7 is basically wiping the slate clean and starting over. When filing Chapter 7 you are assigned an administrator or a Trustee to maneuver the sale of the debtor’s assets. This does not mean necessarily everything you own is sold. Federal and state laws allow certain exemptions, meaning that the debtor might get to keep some property, such as his or her primary residence or some personal items. Once a debtor’s assets are liquidated, the trustee pays certain creditors with the monies that were raised. Most of the financial obligations are forgiven or discharged. Once you have filed Chapter 7 you cannot file a Chapter 7 again for 7 years, and the debts that were not filed in the previous Chapter 7 cannot be discharged in the next filing.
There are certain debts that a debtor will receive not forgiveness for. They are alimony, child support, taxes and student loans. If a lot of your debts fall into this category you might be better off filing Chapter 13.
Chapter 13 and 12 are basically the same filing, except that Chapter 12 is for Family Farmers and Chapter 13 is for individuals. If you have a steady income and less than $269,250 in unsecured debt and less than $807,750 in secured debt, you can file Chapter 13. Once you file Chapter 13 a trustee is assigned to you. The Trustee and the debtor develop a proposal for a repayment plan. The court decides whether to accept or alter the payment plan or dictate another repayment plan. Once a plan is agreed upon, it can take anywhere from 3 to 5 years to repay.
Maybe you are wondering why someone would file Chapter 12 or 13 over Chapter 7. There are a few reasons for this:
• In most Chapter 12 and 13 cases- the debtor only pays back a portion of what they owe. Sometimes it’s as little as 30 to 50 cents on the dollar.
• Under Chapter 12 and 13 filings, debtors don’t have to liquidate their assets. – they actually get to keep everything, not just items that meet the legal exemption.
Chapter 11 is very similar to Chapter 13. The main difference is that there is no limit regarding the amount of money owed by debtor. Originally this filing was only for large corporations, individuals can file Chapter 11 as well.
Filing a bankruptcy cannot be taken lightly, it will affect your creditfor years. The decision to file should be made under the counsel of a financial planner or a legal representative.
Disclaimer: This information has been compiled and provided by CreditScoreQuick.com as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.
