1. Why are credit scores so important?
As credit has become more popular and competition between lenders has increased it became more difficult for a lender to look over the entire report for each new applicant. The scoring system created by www.myfico.com gives the lender a quick snapshot of your credit worthiness as measured by the scoring system. This saves them time and, though you may not yet fully understand it, gives you an edge once you learn how to strengthen the score.
2. What represents a good credit score?
Credit scores range from 350-850. According to most lender matrix sheets, the national average is 665 which is considered AA Credit for mortgages but only "Fair" for credit cards and other loans. A score of 680-720 is considered "Very Good." Anything above 720 and you are considered to be in excellent standing.
3. How do I find out what my score is?
You can go to one of several web sites to obtain a 3-in-1 credit report with your score. A 3-in-1 report simply means that you receive a copy of your credit file as it stands now with all 3 major credit bureaus (Equifax, Experian and Transunion). Any of the bureau sites offer an opportunity to buy all 3 as does www.truecredit.com. Make sure you pay for the "report + score" option.
4. Will pulling my own credit report add inquiries to it?
Not if you pull from the bureaus directly. A consumer who inquires into their own file is not visible to future lenders. Those inquiries are only visible to you.
5. Do lenders completely depend on my score?
For the initial approval yes. After that it depends on many other factors such as % of down payment, loan type, income and assets. There are many loans available such as stated income/stated asset loans for which you can be approved and close without showing bank statements, tax information or assets. This is a common scenario for business people who do not show a great deal of income on tax returns.
6. How can I raise my credit score quickly?
Most lenders will tell you that the only way you can raise your score is to pay your minimum payment over time on all revolving accounts. This is not the case. You can raise your score in no time if you have revolving credit on your credit reports. Revolving credit is credit extended where you pay a minimum payment vs. the full balance. Visa, MasterCard, Discover, store credit cards and other such accounts are revolving. American Express, Diners Club and some gas credit cards are "Open" or accounts that are paid in full upon receipt of the bill. The same rule applies to these open accounts as they represent risk if the balances are high.
The quickest method to raise your score is to pay down 90% of the outstanding revolving credit. In other words if you have a Visa with a $10,000 limit and currently owe $5,000 you owe 50% of the high credit which is not good for your score. Get the balance on that card down below $1,000 and your score will jump. If you have several revolving accounts and do this across the board it will jump up for each one. The real trick is to get the score to jump now instead of having to wait a month or so for the different banks to report that you paid down the balance.
To accomplish this takes just a bit more effort. All that is required is that the 3 major credit bureaus know or have verification of the new balances or better yet $0.00 balances. That means calling the bureaus and requesting that they contact the banks or lenders with whom you have revolving accounts to verify that the balance is much lower now. If you can wait a few weeks and pay off the balances below 10% of the available credit lines before the bill "cut" date, the banks will report automatically and the score will update.
To contact the bureaus, look at the reports you pulled on yourself. Each one has a contact phone number and either a reference, confirmation or report number. Call the toll free number provided and use the option for speaking to a customer service rep. Tell them that you are trying to close on a mortgage and noticed that the report shows incorrect balances for your revolving accounts. That you need them to phone contact the lenders today or tomorrow and re-verify then update the file. Don't take "No" for an answer.
Be persistent if you meet with ANY resistance from the customer service rep and, if necessary, request to speak to a supervisor. If they tell you that there is no supervisor available then you should call the corporate headquarters of the bureau (listed on the resources page of this site). Ask them for someone in the executive offices and tell them that the regular customer service staff refused to help. They will make your problem go away very quickly. This method works 100% of the time so don't delay.
7. What if I have negative credit on my file, can I still raise my score?
Yes, depending on the total picture. If you have some active accounts and follow the afore mentioned strategy, you will raise the score regardless of your negative credit. However, the lender may require more from you in the way of down payment, interest or points to get the deal done. This will increase your odds while decreasing the cost.
8. Is it possible to get negative information off your credit report before 7 years?
In short, YES. Bankruptcy, judgments, tax liens, late payments, charge offs, collection accounts and most other derogatory information can be removed from your report prior to the expiration of 7 years. There are several federal laws that apply here. FCRA (Fair Credit Reporting Act), FDCPA (Fair Debt Collections Practices Act) and FCBA (Fair Credit Billing Act) are laws which protect us from inaccurate, outdated, malicious and non verifiable reporting.
