What You Need to Know About Your Credit Score What’s really in your credit report? A credit report is a history of everything you buy, borrow and acquire with some form of credit. It’s a list of trade lines. These are the people you made a promise to when you said you’d pay them back. It’s like saying, “If you let me drive this car off the lot, I promise to pay you for it over time, at the monthly payment that you and I have agreed to.” Your credit report history shows each entity that reports to the credit bureau, whether it’s a mortgage, credit card or furniture store, and each report has what is called a trade line. Trade lines show how much you have borrowed, as well as how your history of payments have gone. It will show if your payments were been on time, or if they were 30, 60, or 90 days late. Where do I find a copy of my credit report? There are several ways to get a copy of your credit report. One of the best ways is find a mortgage broker who you are interested in working with and have them run it for you. They can usually do this for free or for as little as $25, and as a bonus, they will usually provide a free analysis which explains what the report means to you. How often should I check my credit report? Especially while in the process of trying to improve your credit, it is recommended that you check and correct your credit score every 60 days -- especially while in the process of trying to improve your credit -- just to make sure that nothing shows up on your credit report that you were unaware of. There are cases where something such as a small medical bill that you thought was covered by insurance, can go unpaid and become a collection, which negatively impacts your credit score. How long do items stay on my credit report? Information -- both positive and negative -- stays on your credit report for approximately seven years. Bankruptcies can stay there for up to 10 years. Despite this fact, lenders really look most closely for relevant information that has appeared in the last 24 months. You may have had a collection that you paid four years ago, but if in the last two years, you have paid all of your bills on a timely basis, creditors will likely disregard that collection. However, if that collection is unpaid and is still open, this will reflect negatively on your credit report. Your two years of clean credit does not effectively start until you have paid off that collection. What credit score do I need to get a mortgage? To get a mortgage at the best rate, with the lowest possible down payment, your credit score should be between 620 and 650. A lot of people have credit scores approaching 700 and they get even better deals. If your credit score is under 600, there are loan programs out there that will accommodate you, but they generally require a larger down payment and a higher interest rate. This is the lender’s way of saying that your lower score reflects something derogatory on your credit report. Therefore, they’re taking more of a risk by giving you a loan. FHA is an exception. They have a 3 percent down payment program with no minimum score. Although, it’s nearly impossible to get a mortgage loan if your score is below 580, or if you have unpaid collections and judgments. What if there’s something on my report that is incorrect or not mine? One reason to check your credit report regularly is because many companies will only report when you have an outstanding debt, but will fail to report once you have paid it off. In situations such as these, or if you have genuine mistakes on your credit report, you will need to contact the agency to fix the error. In this situation, the best thing to do is write a letter to the credit bureau -- not call or fax. With your letter, include all documentation that proves your dept is paid. A standard credit correction letter should include a cover letter, a copy of your credit report with the mistake circled, and written documentation that the debt is paid or simply not yours. Once this letter is received, it will generally take 30 to 60 days for the credit bureau to remove the mistake. Keep copies of all of the information that you send to the bureau, and if after 30 to 60 days the mistake is still showing up, call the agency and say, “Thirty to 60 days ago, I asked you to remove this error from my report, and you didn’t do it.” Most of the time, they will just drop it off your report. For more information, please visit: www.liveoutloud.com.
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