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LESSON 12: CHECKING YOUR CREDIT & CREDIT SCORES
(continued from previous page)
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| 1. |
Look for any incorrect
information on your credit report. |
| 2. |
Check for credit
cards that you no longer use, and never closed out. |
| 3. |
Check for late
payments and credit balances. |
| 4. |
Check for accurate account
numbers. Make sure they're yours and not someone with
the same name. |
| 5. |
Limit your amount
of outstanding credit. Even if you pay all creditors
perfectly, you'll have a lower score than someone
with lower balances or fewer cards. |
| 6. |
Resolve outstanding
bills. |
| 7. |
Pay your bills
on time. |
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Get
a copy of your credit report now.
 Some
people think that if you declare bankruptcy, outstanding debts
are erased from your credit report. Sure, they come off -- in
seven years. |
Mortgage companies will take the information contained in the credit
report and use it to compute a credit score, or numerical representation
of your credit worthiness. (They're often called "FICO scores"
after Fair Isaac & Co., the firm that created the most commonly
used formula.) Scores range from the 300s to about 900, with the
vast majority of folks falling in the 600s and 700s. The higher
the score, the less risky you are as a borrower.
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1. Past delinquency: People
who have failed to make payments in the past tend to do the
same in the future. The more recent the delinquency, the more
important it is. A 30-day delinquency in the past 12 months
really hinders your chances of getting a mortgage at a favorable
rate.
2. The way credit has been used: Someone who
is maxed out or close to the limit on a credit card is considered
more risky.
3. The age of the credit file: The
longer you have had credit, the better.
4. The number of times a person asks
for credit: The system frowns upon those who have initiated
several requests for credit cards, loans or other unsecured
debt instruments over a short period of time.
5. A customer's mix of credit: Someone
with only a secured credit card is generally riskier than
someone who has a combination of installment and revolving
loans.
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"We'll never get a loan with our credit."
People with higher scores are more likely to qualify for mortgages
and get the best rates on them. People with lower scores can usually
still get a mortgage, but will be required to pay higher rates.
That's why it's important for you to identify and fix any errors
in your credit report before you go loan shopping. See
Tip 3
Tip 1:
If you're married, make sure your spouse obtains a credit
report too.
Tip 2:
You are entitled to a copy of your credit report: The toll-free
numbers for requesting a copy are Equifax,
(800) 525-6285; Experian, (888) 397-3742; and Trans Union,
(800) 680-7289. Go ahead and order all of them.
Tip 3:
Higher FICO scores lead to favorable borrowing terms. Fair,
Isaac & Co. will reveal the factors used to determine
the FICO score, but your credit standing may still be better
understood if explained by a lender.
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