Credit Scores
If you’ve been researching real estate and mortgage possibilities, you’ve seen the term “Credit Score”. There are three main credit reporting agencies in the US; Equifax, Trans Union, and Experian. These are the agencies to whom your creditors report any activity on your accounts. Your credit report shows how much you owe and to whom, as well as whether or not you make your payments in a timely manner.
Each agency in turn uses a formula to determine your overall credit rating, knows as your credit score. Higher scores indicate better credit than a lower one. For the time being at least, no one knows how the agencies compute the scores and they aren’t telling. That means your score will actually vary between agencies. There has been talk of switching to a uniform equation and possibly even sharing it with consumers.
In the meantime the Federal Trade Commission (FTC) now requires that each agency provide a free credit report to everyone requesting it once a year. Usually, however, they charge you a fee to see your credit score. Whether you choose to pay for the privilege or not, you should examine each of your reports annually to check for errors. You just never know what a third person is saying about your spending activities. Not only that, but identity theft is rampant and you can quickly determine if someone else is charging items to your accounts, or even opening new ones without your knowledge.
What To Look For
Here are the main things to check for accuracy on each of your credit reports:
ü Is your SSN correct? This is mainly how each of us is identified so it is of the utmost importance that it is correct.
ü Is your name spelled correctly and do they list the right address? If you’ve moved within the last 2 years, your former address should also be on the report.
ü Does it show your employer and job title correctly? Again, if you’ve worked there less than 2 years, the position before this one should be listed.
ü Is your phone number correct?
ü Are there payments you’ve made on time that show as late or not at all? If so, contact the credit reporting agency, tell them about the discrepancy and find out how to send them proof to correct the information.
ü Some creditors only report to one or two of the Bureaus. If you want the information of your good standing to show on all three, you can either ask your creditor to include them or send the missing agency copies of your up-to-date statements.
This may seem like needless hassle to you, but if you apply for a mortgage only to be turned down for invalid reasons, you’ll realize why it is so important to stay current with your credit reports. In fact, if you’re even thinking about buying a home, it would be a good idea to send for all three reports before you start looking. Allow several months so you can get any errors corrected before your mortgage application. It often takes that long to straighten out mistakes. The old adage about “better to be safe than sorry” really applies here. What if you lost your dream home over a foolish mistake on someone’s part? You’d be heartbroken and doubly so since it didn’t have to happen that way.
** Update as of 10/7 - A great suggestion was made a friend and activerain member Erik Hitzelberger which is to pull from one bureau every 4 months. This will allow you to check your report 3 times a year for free. The website which allows you to do so is www.annualcreditreport.com. Thank you Erik! **
Watch for my next post regarding “Building Credit”
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Some very important information to know. I appreciate you sharing them. I thought it automatically goes to all 3 bureaus.
Thanks Loreena. You would assume that it should go to all 3, which is the case most of the time. But there is a percentage that does not go to all three bureau's which can certainly make a difference on your report. Especially since most lenders use the middle FICO score and pay close attention to what is reported as of late.
JOHN, Great information. So I have a questions for you. You are supposed to be able to get a free credit report which we did but then found out you have to pay to find out what your actual score is. What's up with that!
Marchel - That is where they get you. Legally, they only need to provide you with the details so you can ensure that you were not a victim of ID Theft and also to check that the reporting is accurate. If you want to know the scores, that's when they get you (as you found out). Nothing obligates them to tell you the score, just the details of the report itself.
John......never thought about recommending to my clients to check out their credit reports before they made an offer. I mean I recommend them to seek out a lender and then the lender takes over, but good idea for them to even be another step ahead of the game.
Definitely worth the investment when in need of a large loan - the money spent to get this will save you possible heartache in the future.
When I was in college I had a small student loan that I thought I had paid off - I had stopped receiving bills and had moved back home. Turns out there indeed was a balance owed, the bills had continued to go to the house I was living in but the new owners had not forwarded them to the previous owners (I lived with a friend's family for a semester and they sold the property after I left). After almost a year, they decided those "red ink" stamped letters must be important and sent them on to the family I lived with.
Long story short, the penalties were more than I owed and being young and naive, I had no idea how to fix it but knew I had to. I believe it took over 6 months to straighten it out and explain the situation to not only the financial aid office (apparently the school knew I had moved but that office did not) but the institution borrowed from. It was a big lesson but you never know what's on there unless you check it out. I can attest you can get it cleaned up - my credit today is impeccable. Don't let ignorance blind you.
JOHN Essential information to have since it seems we can't make a move without it being wrapped around our credit.
Hi Roxanne! It's another way for the buyer to be prepared. Plus it puts their mind at easy about their credit. But, as I mentioned and Marchel confirmed, you will not get your credit score, just the report itself.
Wow Karen, what a pain in the neck. You are right, this is a great example of what could happen if you are not paying attention and/or just forget about something. Glad you could work it out though. It would be quite a nightmare having to pay all of those penalties.
Trunda - Since Credit is a major part of what rate our customers receive, its important that they know what to expect. Plus it gets them involved and educated.
John - Two quick points to help those you follow your excellent advice.
1) The website is www.annnualcreditreport.com
2) You do not have to check each of the agencies at the same time. If you are getting a loan, it is a good idea to do so. However, if you are just checking to identify identity theft, etc you can select 1 agency. This will allow you a check every 4 months.
That is a great tip Erik. I had not thought about doing this every so many months and only checking one bureau at a time. Thanks for the tips.
John -- You have some great information here, especially for first time home buyers. I check my credit report every year on the website Erik commented about, but it may be better to do it three times a year, once on each bureau.
I thought it was a great idea also Shirley. I was going to update my post to reference that suggestion but was not sure if that would be okay. What do you think? Is that stealing Erik's idea? I can obviously mention that it was his idea. Maybe I should just ask Erik.
Erik?
John - Feel free to update your post. It will be much more valuable to your readers to have it in your post then buried down in the comments.
Thanks Erik! I'll update it now. I wanted to be sure you were on board so that I did not steal your idea. Well, I am stealing it, but I'll give you credit.
Great post - it is so important for people to stay current with their credit report. I have seen my clients' heartbreak of not staying current a couple of times, easy things that could have been fixed prior to applying for a mortgage.
Linda - That is actually what caused me to write this series. I had a person that was convinced his credit score was above 720 and when I pulled it, he was below 660. Obviously, that conversation was long because we went through each reason why the credit scores went down and areas he needed to focus on. His credit was not really that bad, but he had opened too many new accounts which did not have the history behind them.