F WHAT EVERY CONSUMER SHOULD KNOW ABOUT CREDIT REPORTS MORTGAGE EQUITY P A R T N E R S Your Leaders in Lending B The information contained herein is for informational purposes only. The algorithymes and credit score models used by the credit reporting agencies are not part of the public record. By providing this information, the Mortgage Equity Partners organization seeks to use its experience with credit reporting to offer guidance in understanding credit reports and credit scores to its clients. None of this information should be construed to be advice to repair of fix a credit score. Mortgage Equity Partners does not and can not repair credit. Prudent fiscal behavior leads to a good credit score. You are encouraged to contact the credit bureaus directly for more information on your score and how to process disputes and/or improve your credit. MORTGAGE EQUITY P A R T N E R S 200 Broadway Suite 101 Lynnfield, MA 01940 781.309.1800 www.meploans.com MA Lender MC # 3692
2 There are three national credit bureaus - Equifax, Experian and Trans Union: Equifax Information Service Attn: Disputes PO Box 740241 Atlanta, GA 30339 www.equifax.com 800-685-1111 Experian Attn: NCAC PO Box 2002 Allen, TX 75013 www.experian.com 888-397-3742 Trans Union Corporation Attn: Disputes PO Box 4000 Chester, PA 19016 www.transunion.com 886-887-2673 3 Each item of information contained in your credit report at these three national credit bureaus contributes either positively or negatively to your credit score. Your credit score is used in automated decision making systems at various credit grantors across the country to determine your eligibility for credit. Credit report scoring models are very precise, yet the process of credit grantors reporting millions of tradelines of information to the credit bureaus creates opportunites for errors. This is why all consumers should understand three important components of their credit: How credit reporting works How credit scores work What steps to take to monitor and correct your credit report in the event of errors Contact your Mortgage Equity Partners Loan Officer at 781-309-1800 to discuss your credit report and to receive your score. Your Loan Officer can provide you with all the facts to help you take control of your credit health, and let you know to what extent your credit score can affect your interest rate. WHAT EVERY CONSUMER SHOULD KNOW ABOUT CREDIT REPORTS
4 Where Does Credit Information Come From? Credit report information comes from credit grantors across the country, such as auto and home lenders, banks, retail stores and credit card companies. Information is also collected from other sources, such as court records, where information on bankruptcy filings, tax liens or other judgements is collected. Employment information is also collected. What Is A Credit Score? A credit score is a number that represents the statistical probability of you becoming delinquent on loans extended to you. Credit scores range from 300 to 850, with the majority of scores falling in the range of 500 to 750. Credit scores were developed by a company called Fair, Isaac & Company (FICO). 5 The scoring models created by FICO take all the detailed information contained in your credit report and produce your credit score using different weights and factors contained in the FICO scoring models. Fair Isaac s models are based on risk assessment. The first purpose of the FICO score is to show how likely you are to become at least 90 days late in making payments in the next 24 months based upon patterns in your credit history, compared with patterns of millions of past customers. The general scoring range is 350-850. Fair Isaac divided the scoring range into five risk categories. 780-850 Low Risk 740-780 Medium - Low Risk 690-740 Medium Risk 620-690 Medium - Medium Risk 620 and Below High Risk or Non-Prime Each of the three major credit bureaus uses their own proprietary version of the FICO scoring model. Each of these models is updated by Fair Isaac from time to time to improve their predictabilty. ABOUT CREDIT SCORES
Credit scoring systems look at each amount on your credit file and review it through a proprietary algorithm that uses the information alone and in relation to other information on your credit file. This calculation determines the likelihood for repayment or delinquency. 6 Factors influencing your credit score are: Current or late payments How late the payments are Number of open accounts you have How much credit you are using in relation to how much credit you have available If there are serious delinquencies on your file like bankruptcy, liens, and charge off accounts Fair Isaac scoring models place a great deal of weight on how recently you had a credit problem. Below illustrates the impact a major delinquency has on your credit score over a period of time: Your credit score is a snapshot, in that it is developed at the time of inquiry by a credit grantor pulling your credit file. Your credit score can change with the passage of time as well as with the addition of new information to your credit file. As delinquency information in your file ages, its negative affect on your credit score lessens. ABOUT CREDIT SCORES A major delinquency in the past year = 93% negative impact. A major delinquency 1-2 years old = 60% negative impact A major delinquency 2-3 years old = 44% negative impact A major delinquency 3-4 years old = 33% negative impact A major delinquency older than 4 years = 22% negative impact How Your Credit Score Affects Your Loan 7 Today, most loan decisions use credit scoring models to determine elegibility for credit, interest rate, terms, down payment amounts and other terms of the loan. Underwriting systems are responsible for our national credit industry s ability to quickly and efficiently speed up the decision making capabilities for hundreds of millions of loan decisions each year. Because of this, millions of people can buy homes, cars and other major purchases on credit in a matter of minutes rather than the months it would take without the availability of our credit reporting system. It is a good idea for all consumers to be familiar with their credit score. At Mortgage Equity Partners we can help you better understand your credit score. For more information contact your Loan Officer directly.
8 Credit scoring uses the following five areas of information to calculate the score: Payment history = 35% Amounts owed = 30% Length of credit history = 15% New credit inquiries = 10% Type of credit used = 10% How Your Credit Score Is Calculated Credit scores do not look at race, age, color, religion, national origin, sex, and marital status. Credit scores do not look at a consumer s salary, occupation, title, employer, employment history and employment dates, place of residence, interest rate charged by lender, child/family support information, and rental information. US law forbids credit scoring from considering this information. In addition, the receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act is not allowed to be considered in the development of a credit score. 9 Payment History Payment history is one of the most important factors of your credit score and accounts for 35% of your score. But just because you have some late payments does not mean your score is dead in the tracks. An overall good credit picture in the last several years can outweigh one, or even two late credit card payments. However, be sure to pay all your bills on time. If you have any missed payments, bring your account current and keep it current. The longer you pay your bills on time, the better your score will be. Amounts Owed The current amount you owe makes up 30% of your score. Owing money on the accounts you have does not mean your credit score will be lower or that you are a high risk borrower. However, owing a large amount of money on many different accounts can indicate a consumer is overextended and more likely to make late payments or default on their obligation to repay. Having a minor balance without missing a payment illustrates you have managed your credit wisely, and can be slightly better than no balance at all. It is not always best to consolidate debt onto one card, as this may lower the available credit-to-debt ratio. It is best to keep balances low on credit cards and othe revolving accounts - maintain balances below 50% of the available credit limit. The best way to improve your score is to pay down revolving debt. ABOUT CREDIT SCORES
10 How Your Credit Score Is Calculated Length of Credit History Length of credit history accounts for 15% of your credit score. Generally, the longer the credit history, the higher the score. Credit history looks at how long your accounts have been established and how long it has been since you used certain types of accounts. If you have been using credit for a short period of time, it is best to avoid opening several new accounts all at once, as this will lower the average account age. In addition, rapid account acquisitions can look riskier if you are a new credit user. 11 New Credit Inquiries New credit inquiries make up 10% of your credit score. An inquiry is defined as a request by a lender for a copy of an applicant s credit report. New credit inquiries take into consideration how many new accounts you have by type of account, the time since a new account was opened, the number of recent requests for credit, how long inquiries were made by a lender, and whether you have a good recent credit history. Inquiries remain on a credit report for two years, but credit scores only look at the inquiries in the past 12 months. Types of Credit Used The types of credit you use account for 10% of your credit score. The score will look at a mix of credit cards, retail accounts, installation loans, mortgage loans and finance company results. To improve this aspect of your credit score, apply for new credit accounts only when you need them. Do not open new accounts just to change your credit mix, as it is unlikely it will raise your score. Remember that closing accounts does not make them go away. A closed account will still appear on your credit report and may be considered in your score. If you close an account with a poor payment history, it will become a more recent account because the date of activity will change, so try to refrain from doing this. ABOUT CREDIT SCORES
12 13 Identity Theft Concerns of fraud and identity theft are very pervasive today. Consumers want the ability to protect their credit from unauthorized use. Some methods available are: fraud alerts and a credit freeze. Please contact the credit bureau directly, or our identity security partner, ID THEFT SECURITY (www.idtheftsecurity.com) for more information. ABOUT CREDIT SCORES
How can I improve my credit score? Your Mortgage Equity Partners Loan Officer, in conjunction with Birchwood Credit Services, can answer any questions you may have and advise you on the steps to take to better understand your credit score. CreditXpert is a service we offer that looks at your credit report and searches for behaviors that impact your score. 14 I pay my bills on time each month, so why is my credit score so low? Many people who have perfect payment history on all their outstanding credit accounts have low scores. This is because there are many other factors in the FICO scoring models that can have a negative impact on your score. For example, if you have credit accounts that have high balances in proportion to the credit limits on your accounts (a $4,000 balance on a credit limit of $5,000), this can actually lower your credit score. I have a good job and pay cash for my purchases but my credit score is low. How can I raise my score? Many consumers that do not use credit regularly can have a low credit score or no credit score at all. Your credit score is a reflection of sound fiscal management. Using your credit wisely results in a good score. How can I correct errors on my credit report? You can correct errors on your credit report directly through the credit bureau in question, or you can work with your Mortgage Equity Partners Loan Officer on how to contact the credit bureaus and dispute information you believe to be in error. How long does a collection account, judgement or bankruptcy stay on my credit report? A bankruptcy stays on a credit report for 10 years. Collection accounts and all other credit report information stay on credit files for seven years. How recent information is, can be a big determinant of credit score results. Having a previous bankruptcy is not always a road block to getting a home loan, especially if it occurred more than three years ago. Contact your Mortgage Equity Partners Loan Officer to determine what loans you are eligible for. I have inquiries on my credit report that I do not recognize. What can I do? Many inquiries are made by companies looking to make offers of credit to you; for example, credit card companies. These types of inquiries do not affect your credit score, nor do credit report inquiries made by you. If there are inquiries on your report that you do not recognize, contact the major credit bureaus directly. I have information on my credit report that is not mine. What should I do? You may be a victim of identity theft, fraud or simply a mixed file. You should contact the credit grantor immediately and also contact all three major credit bureaus for more information on what actions are appropriate. Can I get a copy of my credit report? Yes. As a resident of Massachusetts you are entitled to a free report each year. Contact each credit bureau directly for your free report and information on other state-specific guidelines. 15 Can I get a copy of my credit report in Spanish? Yes. Your Mortgage Equity Partners Loan Officer can request your report be in Spanish. FREQUENTLY ASKED QUESTIONS
16 17 Credit scores and credit reports can be very daunting for many borrowers. Your Mortgage Equity Partners Loan Officer is here to answer all your questions, offer guidance and help make buying or selling your home as quick and easy as possible. To learn more about credit scores, buying or selling your home or home loans in general, please contact your Mortgage Equity Partners Loan Officer. CONCLUSION
About Mortgage Equity Partners Fortunately, at Mortgage Equity Partners, our mission is to set a high standard in the mortgage industry. We are committed to quality customer service - putting the people we serve FIRST. Take advantage of our expertise in the residential lending industry by applying online today. You will find that the skill, professionalism and consideration we give to each of our clients make obtaining your loan a successful endeavor. Give us a call today at 781-309-1800 for a free, personalized consultation. You can also apply online. It is fast, secure and easy. Whether you are considering a refinance, purchase, or getting pre-qualified to buy a home, we are here to guide you through the process. Why wait? Let us go to work for you! www.meploans.com Your Leaders in Lending