…to current and prospective creditors to help you make purchases, secure loans, pay for college educations and manage your personal finances. Credit reporting makes it possible for stores to accept your checks, banks to offer credit and debit cards, businesses to market products, and corporations to better manage their operations to benefit the worlds economy.Your credit report is only compiled when you or a lender makes an inquiry. Information supplied by lenders, you and court records is gathered from the credit reporting agencys file and presented in report format for the requester.Credit grantors send updates to each of the credit reporting agencies, usually once a month. These updates include information about how their customers use and pay their accounts.CREDIT SCORING:Credit scoring is a statistical method that lenders use to quickly and objectively assess the credit risk of a loan applicant. The score is a number that rates the likelihood you will pay back a loan. Scores range from 350 (high risk) to 950 (low risk). There are a few types of credit scores; the most widely used are FICO scores.Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status. Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.Different portions of your credit file are given different weights. They are:35% – Previous credit performance (specific to your payment history) 30% – Current level of indebtedness (current balance compared to high credit)
15% – Time credit has been in use (opening date)
15% – Types of credit available (installment loans, revolving and debit accounts)
5% – Pursuit of new credit (number of inquiries)The most important factor for a good credit score is paying your bills on time. Even if the debt you owe is a small amount, it is crucial that you make payments on time. In addition, you may want to: keep balances low on credit cards and other revolving credit; apply for and open new credit accounts only as needed; and pay off debt rather than moving it around. Also dont close unused cards as a short term strategy to raise your score. Owing the same amount but having fewer open accounts may lower your score.Recent changes minimize the negative effects that rate shopping can have on a mortgage applicant. If there is a consumer originated inquiry within the past 365 days from mortgage or auto related industries, these inquiries are ignored for scoring purposes for the first 30 calendar days; then, multiple inquiries within the next 14 days are counted as one. Each inquiry will still appear on the credit report.Every score is accompanied by a maximum of four reason codes. Reason codes identify the most significant reason that you did not score higher. The reason codes can help a lender describe the reasons for higher than expected rates or loan denial. Scores are not part of the credit profile and are not covered by the Fair Credit Reporting Act.Your credit report must contain at least one account which has been open for six months or greater, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.STEPS AFTER BEING DENIED A MORTGAGE LOAN:Its never fun to be turned down for a loan, but before you think you wont be able to get credit anywhere, there are some steps you can take.Lenders are required by a federal law, The Equal Credit Opportunity Act, to tell you in writing when youve been turned down for credit. Two important pieces of information must be included in the letter you receive when you are denied credit:The specific reasons why you were denied credit (or information on how to obtain those reasons); andIf a credit report was used in making that decision, the name and address of the credit reporting agency that supplied it.If you dont understand the reasons given for turning down your application, ask for more information. Sometimes it can be hard to determine exactly why your application was not approved, because these decisions involve a lot of different factors. Dont be shy about asking, though, since the information you receive may help you improve your credit so you can qualify in the future.You may be denied credit for various reasons, including not meeting the creditors minimum income requirement or not being at your address or job for the required amount of time.If your loan application was rejected because of insufficient income to afford the house you want or you have insufficient funds for closing costs and a down payment, you could consider loan programs for low to moderate income borrowers with lower down payment requirements, such as an FHA loan or VA loan.If you requested the loan amount which is larger than 95 percent of the appraised property value, the chances are that loan will be denied. In this situation:You can try to renegotiate with the seller for the purchase price to lower the loan amountMake an additional down payment to cover the difference between the appraised value and purchase priceIf you think the appraiser undervalued the property suggest that the lender reexamine the appraisalIf your loan is turned down because of a poor credit report, you are entitled to a free copy of that report. You must request it within 60 days, so dont wait to order it. Read your report carefully to make sure it is accurate and complete.Once you have a copy of your credit report, you should check for errors and fix any errors by disputing them with the credit report agency. If you believe that mistakes on your report led to the rejection of your application, you can ask the credit bureau to send a corrected copy to the lender. Follow up with the lender to find out if your application can be reevaluated.Finally, you can try again. All lenders have different approval standards. Just because you did not get a loan from one financial institution doesnt mean you cant get one somewhere else. Try again with another company. Just dont apply for more than four or five loans in a six month period.IMPROVING YOUR CREDIT:If you have had credit problems, be prepared to discuss them honestly with a mortgage professional. Responsible mortgage professionals know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties. If you had a problem thats been corrected, and your payments have been on time for a year or more, your credit may be considered satisfactory.If you are currently in excess debt, there are four ways to control it:1. If your credit is not in terrible shape, you can reduce your other expenses, even if it means making hard choices or changing your lifestyle to fit your income. Consider selling a second car, taking equity out of your home, applying for a non secured signature loan, obtaining a loan from a relative, selling your home and paying off your debts with the proceeds and then renting, cashing out your 401K/retirement benefits or selling family heirlooms, jewelry, etc.2. If your credit is already damaged or one of the above isnt an option, go through Consumer Credit Counseling Services (CCCS). Check your yellow pages for the local number. CCCS may be able to help you pay off your debts as if you were in a Chapter 13 bankruptcy, but you dont actually file for bankruptcy.3. If CCCS wont take you, you may want to consider bankruptcy. Claiming Chapter 13 bankruptcy takes longer than a Chapter 7, but your credit will end up in a little better standing. Chapter 13 bankruptcy gives you up to 5 years to pay off your debts. The disadvantage is that youre in bankruptcy for up to 5 years plus your credit report shows your bankruptcy for 7 more years after you have finished paying off your debts.4. If you are so far in debt that you can never repay it, then the best solution may be a Chapter 7 bankruptcy. A Chapter 7 bankruptcy is the least desirable from a credit standpoint, but you are typically out of bankruptcy in 6 months and you dont have to repay any debt. The disadvantage is that this shows on your credit report for 10 years from the date of filing your bankruptcy. Creditors are starting to tighten their credit requirements, and you may have a tough time getting future financing.If your debts are under control now, but want to improve your bad credit history, the most important factor is to make your monthly payments on time. Use pre-addressed envelopes enclosed with your statements to mail your payments and call the company if you dont receive your usual statement. Also send your payment as early as possible if you carry a balance. Most companies calculate interest on a daily basis, so the sooner they receive your payment, the less interest youll pay.Dont procrastinate. Its the day your payment is received that counts, not the postmark date. Give the post office sufficient time (five business days is a good guideline) to deliver your mail. Late payments may mean late fees, higher interest, and/or a negative mark on your credit report.Never send cash. Open a checking account if you dont have one, or spring for a money order and keep your receipt. Finally dont forget to tell your creditors your new address when you move.If you are worried about making payments, make a list of your debts and when the payments are due. Contact your lenders immediately if you think you will have trouble meeting the monthly payments to arrange a payment schedule.Taking money from your retirement account or tapping the cash value of your life insurance policy to pay bills or living expenses may have serious implications you havent considered, so try to get advice from an expert before you take any major financial actions.Credit cards can be invaluable in a crisis, since they allow you to charge items and pay them off over time. But they can also be dangerous if you arent careful and charge more than you can afford. If you do use credit cards, choose those with the lowest interest rates and pay them back as soon as you can to cut your costs.

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