Credit Repair ??? Essential Credit Score Facts

Who are the credit bureaus?

And yet there may be nothing that has such a profound influence on your financial life. There is no government charter or anything of the sort. they are nothing but big business.

It???s not true ??? There is a common misconception that the credit bureaus are in some way connected to the government. We speak to people about their credit all day long. I have managed a national credit repair business since 1989.

There are three credit bureaus that matter. They are Experian, Equifax, and TransUnion. Their business is to gather credit data about you and sell it to potential creditors to determine your credit worthiness.

There is a fourth bureau called Innovis that you may hear of occasionally. Innovis is a major compiler of credit data which is used for pre-screening those unsolicited credit card offers we all get in the mail. Mortgage giants Fannie Mae and Freddie Mac contributed to the rise of Innovis in 2001 by demanding that all of their mortgage servicers report borrowers??? pay histories to Innovis. I suspect that we will all hear more about Innovis in the future, but for the moment it has no direct impact on your life.

What is a credit score?

At the moment all three bureaus use a single scoring model called the FICO score. FICO is an acronym for the developer of the score, Fair Isaac and Co. The three bureaus have branded the FICO model for their own marketing so you may hear it called different names. Equifax calls it a BEACON score, TransUnion calls it an EMPIRICA score, and Experian (who seems to lack imagination) calls it the EXPERIAN/Fair Isaac Risk Model.

Why are your three scores different?

Your scores with each bureau are different because each bureau gathers information from a slightly different mix of creditors. If you were to look carefully at your three reports you will notice that some accounts are missing on each bureau. Timing also plays a roll. A recent change in your credit may be picked up sooner at one bureau than another.

What???s included in your score?

As the manager of a Florida mortgage company serving the states of Florida, Georgia, Massachusetts and Virginia and a national credit repair company I spend a lot of time analyzing credit reports. Everyone wants to know what they should do to improve their credit scores. The exact method for calculating your credit score is a secret. But Fair Isaac offers a fair amount of information about the essentials. There is a lot of information on your report. And not all categories of information carry the same weight in the score calculation.

Your payment history is the big ingredient. This category includes the obvious installment and revolving debt payments. It also includes public records and collections. The age of any derogatory item in this category diminishes its impact on your score. Fair Isaac indicates that his category makes up 35% of your score.

The balances you owe make up the next category. Different weights are given to revolving versus installment balances. The relationship between the balance and the credit limit on your revolving accounts is a big factor. And the relationship between the current balance and the original balance on installment loans is taken into consideration as well. Fair Isaac indicates that this category makes up 30% of your score.

The length of your credit history is a factor as well. New credit will have a negative impact on your score, and those accounts that you have kept alive and healthy for years have a good impact. This category makes up 15% of your score.

Your new credit and your recent credit inquiries are a factor. If you have new credit or have had your credit run recently you have increased your debt load, or you are about to. Either way you will lose a few points on this one. Fair Isaac weighs this at 10% of your score.

Fair Isaac won???t say exactly what the perfect mix is, but in our experience the key is to build and maintain a well managed balance of accounts, make your payments on time, and try to keep those revolving balances down. There is some ideal mix of mortgage, installment, retail store cards, revolving accounts, and consumer debt that Fair Isaac will reward. This is a bit more mysterious.

The type of your credit is the last ingredient and the final 10% of the calculation.

All Rights Reserved. All Content. Kemish.

2007 James W. Copyright ??

Three Steps To Getting The Best Mortgage Deals With "less Than Perfect Credit" In Today 's Mortgage Market.

The problem is the programs to access these rates have been narrowed down so much that only the people with the best credit can qualify for them, at least that 's the conception. However in the midst of this market fiasco we are seeing interest rates at the absolute lowest we have seen in years. Many of the mortgage programs that used to be available to home owners and future home owners are simply gone.

Getting your best mortgage deal may require a little homework on your part, but they are out there. Today 's mortgage market is different than anyone has ever seen in the history of mortgages.

Although FHA is not a subprime lender it is a common sense mortgage where people with less than perfect credit can access to the best mortgage deals. The reason is for this is the collapse of the subprime market. Our old friend FHA has been dusted off and has now moved to first place over the traditional mortgage champs, Fannie Mae and Freddie Mac. The best deals on mortgages are still out there for most people with "less than perfect" credit.

When I say "common sense" I mean that a real underwriter will look at the loan in most cases and make a determination whether or not the borrower merits a loan. With the two other mortgage giants Fannie and Freddie, the underwriters follow an automated computer model for underwriting that they rarely stray from. Not so with FHA, as I mentioned earlier the underwriter is looking for "compensating factors" that can be used to counter the negative items on your credit report i.e. a collection. In general an FHA underwriter is looking for these three qualities in a borrower.

Capacity - This is the borrowers ability to repay the mortgage. These factors include your debt to income ratio, length of time on the job or field of work and the likeliness that the job/income will continue. Generally underwriters like to see borrowers in the same field for two years and on the same job for one year. So, if you hate the job but you really want to buy a home, I suggest that you "suck it up" for at least a year then apply.

Collateral - Is simply the home you are attempting to buy or refinance. FHA loans money to the borrower and on the home. In today 's market each is given equal scrutiny. If you have credit issues the underwriters want to see you buy a home that makes sense for your budget and one that is in good shape. This means you probably will not get approved buying a "fixer upper" or repossessed home. Have your realtor find you a fairly new home, in your budget that is in good shape. If you get this piece of the puzzle you are well on your way to a great mortgage deal with an FHA mortgage.

Credit - FHA does not care what your credit score is. However, this is still the toughest step of the three steps. This is where picking an experienced loan officer can make all of the difference in getting the loan or not. Basically, if your bad credit can be explained to an underwriter in these terms they will overlook the bad credit that you have had in the past. The explanation letter should be comprised as follows: Why I was bad - what happened to cause your bad credit in the past. (I forgot to pay them or never got the bill IS NOT?a good excuse) I was in the hospital, lost my job, had a divorce the spouse was supposed to pay the debts, these are much better excuses.

What I have done to correct that situation - Are you paying on the collections, have you made your payments on current debts on time for at least one year, got a new job that 's more stable, improved my health and so on. Basically the underwriter wants to see a measurable effort on your part to improve your situation.

You should elaborate a little here but you get the point. Why I will not repeat these old habits because of my new job, the money I have saved in reserves for a rainy day and a second income in the family".

At the worst you will have to wait a year to have access to the best mortgage deals in today 's market. Follow these three steps and you are very likely to be able to buy a home. Why I was bad, how I have gotten better and why it will not happen again.

The story should read like a resume, direct and to the point. Quite frankly, they really do not care that your wife was cheating on you and ran your credit cards up and left you with four children either. Underwriters have 5 loans a day to underwrite and they do not have the time to read war and peace. When putting these variable in a letter please do not write a novel.