Credit Report Scores: Know Where You Stand And What It Means

Credit report scores are important to any kind of financing, be it a mortgage or otherwise. Know where you stand and what it means. Repair your credit report if there are errors.

First, what is a credit score? In the eyes of a lender, it indicates how likely you are to pay on a loan on the agreed terms. It serves as a predictor of your future performance. The higher the score, the more likely you are to pay on time. The reverse applies the lower the score.

Your score changes every time something is added to you credit report, so it's hard to determine a single score.

One thing I have seen in the mortgage industry are folks who think their credit is okay, only to discover that there are some old "problems" coming back to bite them when they apply for financing. Many of these can be remedied by contacting the credit bureau, (yourself) and having the item removed, (if in fact it should be). I recommend getting a free copy of your credit report once a year to prevent any headaches in the future. Only you can do this. Your mortgage broker or other financial assistant cannot order it for you.

Many people have questions regarding their credit scores. The biggest is, "What does it mean?" I'll try to shed some light on the subject for you.

A credit score is like a "grade". However, it's not based on what most people think--your past. A credit score is a gauge or predictor of how you'll perform in the future. This is a good thing because what it does is allow lenders to judge how they think you'll pay in the future even if your credit was so-so in the past.

What if you discover an error in your report? First, contact the credit bureaus and make sure that they fix the mistake. This is especially important if you have been turned down by a lender. Once the error is corrected, you can go back and ask them to reconsider. Don't expect them to correct the error for you! You must do this yourself. Just because you change the item or items doesn't mean your score will change. But, it may so it's well worth the effort.

Obtaining Copies of Your Credit Report:

There are ways to obtain your credit on line, but I am going to focus on the more traditional method, which is calling the repositories and then writing to them for any corrections.

If you are turned down for credit somewhere, you are automatically entitled to get a free copy of your credit report. If you request a copy of your credit report, unlike an inquiry, it will not affect your score in any way at all. (Even if you are not turned down somewhere, you are entitled to one free report per year.) Give the credit bureau 30 days to investigate and correct any errors that you find. They are required by law do address your issues in a timely fashion.

Here are the phone numbers of the repositories:

Equifax: 800-685-1111

Trans Union: 800-690-1909

Experian: (Used to be TRW) 800-682-7654

The Addresses:

Equifax: P.O Box 740241, Atlanta, GA 30374-0241

Trans Union: 760 West Sproul Rd.,P.O. Box 390, Springfield, PA 19064-0390

Experian: P.O. Box 949, Allen TX 75013

I found an error. How do I correct it?

The Federal Credit Reporting Act and the credit reporting agencies themselves have responsibilities to protect you and to correct inaccuracies on your report. To correct an error, you want to contact both the credit bureau about the mistake and the business/financial organization who made the mistake on your report.

First, write to the credit reporting agency and tell them what you believe the error to be. Sometimes it helps to send them a copy of your report with the area in question highlighted. The letter you compose should explain clearly what you feel the error to be and why you are disputing it. Keep copies of everything you send.

The Credit reporting agency must send all of your disputes to the organization which has made the error. If the organization feels that you are correct, they have to let all the credit reporting agencies know this so that the information can be corrected in your report.

Secondly, write to the information provider who you feel made the error. Send them any documentation you have that supports your case.

A final note about scores.

This applies to mortgages. As a loan originator I know that a score of 620 or above qualifies you for a convention mortgage. Anything lower than that disqualifies you. At that point, you must investigate other options, of which there are many. There are three scores involved in a full credit report and it's called a three bureau merge.

Keep on top of your credit. Remember, no agency is perfect and it's up to you, the consumer, to beware. If there is an error, never rely upon a credit agency to correct it. It is up to you to keep informed and to clear up any discrepancies.

© High Speed Ventures 2011