< Read Another Article Your Credit & the Credit Bureau Ð Part II Last week we began exploring the history of "Fair Isaac, Co.", credit scoring (more commonly known as your FICO score) and the things that do and do not influence your FICO score. In a snapshot review, your FICO score is calculated based upon all credit-related data in your credit file. This includes the following: Payment history Outstanding debt Credit history (age of oldest credit & number of new credit lines) Pursuit of new credit Types of credit currently in use When you authorize a lender to run your credit report you may be presented with one or more options of the kind of report to be run. Some lenders will not charge you for this at all. More common however, is some fee based upon the type of report. One type of report will cost anywhere from five dollars to twenty-one dollars. This type of report pulls your credit data from one of three national repository agencies. The three agencies are: Equifax; Trans Union and Experian. From the report, an experienced loan agent can make a determination based on the report and your FICO credit score in order to issue you (or your Realtor) a "pre-qualification" letter. While the pre-qualification letter gives credence to your ability to purchase a home, it is a far cry from having a "pre-approval" letter. The pre-approval letter is of much greater value. A letter from a lender stating you are pre-approved is an important strategic tool in today's real estate market. It tells the Realtor and more importantly the seller you are serious and you have the ability to follow through with the offer you are making. In order to gain the pre-approval status, a lender will require another type of credit report we spoke of last week known as a "tri-merge" report. This report merges all credit data from all three credit repositories. In addition, they will verify information on the credit report to be current and accurate, i.e., employment. This tri-merge report will cost you around fifty dollars and most lenders will collect this fee in advance. Count these as pennies well spent. If you do not have a loan agent you are accustomed to doing business with, almost as important as the pre-approval itself is the relationship you gain with your loan agent through this process. You will quickly find out whether or not you are dealing with someone you believe you can depend on and trust. [If you're uneasy, find someone else quick. There are lots of great loan agents out there.] Once you have your tri-merge report and FICO score you may be interested to know why you received the score you did. There are literally dozens of codes used in the analytical process of calculating your FICO scorecard. But don't let that frighten you! It's really pretty simple. Each of these codes is assigned a two-digit number and there is only four codes that are most listed for mortgage underwriting as reasons why a score could not be higher, although other factors may have contributed too. These four score factor codes in the order of severity are: 02 - Delinquency on accounts 01 - Amount owed on accounts is too high 09 - Too many accounts opened in last 12 months 19 - Too few accounts currently paid as agreed Even if you are sure your credit is sterling and you are considering refinancing or purchasing a home, you should order a copy of your credit report from one or more of the repositories. Remember, what's on one report may not be on another, or vice versa. If you only get a report from one repository you may have negative information listed at another repository. You won't know it until you apply for your new loan or a pre-approval. Better yet, to avoid the trouble of contacting all three of these agencies have your loan agent run one for you. It's quite simply the quickest and most cost-effective way of getting your credit report from all three repositories. Inadvertent errors or not, there is no short-term solution for the removal of derogatory credit information on your credit report. It will take two to three months to get it corrected if not longer. However, this can be where a seasoned loan agent plays their most important role and more than earns their commission when they can solve credit issues quickly. Over time, score factors can be improved by taking some easy steps. The most important is to pay as agreed. This may necessitate consolidating debt to have one or two payments. Use credit wisely. As derogatory data in the credit report gets older, it has less affect on the score. A missed payment from two years ago will not ruin your chances for getting a good rate on a new mortgage today. Certainly paying off credit cards altogether (if possible) is one solution. If you keep them paid off for any length of time your FICO score will rise dramatically. You are considered an excellent credit risk since you have the ability to use credit but are choosing not to. When you ultimately choose to use credit or apply for a mortgage a lender looks upon this quite favorably. For more information on Credit Bureau scoring look for future articles or call Rich Young at Action Residential Mortgage at 800-459-9872. Also, extensive financial calculators and other consumer related information is available at the Action Residential Mortgage website at www.ActionMortgage.com. < Read Another Article

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