One of the most significant pieces of legislation to address unfair lending practices and consumer rights is the Fair and Accurate Credit Transactions Act of 2003. The Fair and Accurate Credit Transactions Act address identity theft, as well as allowing the consumer to receive a free copy of their credit report from each of the credit reporting agencies every year.
When you apply for a mortgage, one of the first things the mortgage lender will do is look at your credit report. Credit reports contain information about how you have used and are using your credit lines. They contain information like your payment history, delinquent payments, and outstanding debt. Mortgage lenders use this information to help decide how much of a risk you would be to offer a loan to.
Credit reports are nothing new and have been used by businesses for thousands of years. In concept, using a credit reporting system makes sense, as it allows businesses to more easily analyze risk. However, in the past a great deal of personal information, such as race and religion, was included in credit reports and this information was often used to discriminate against a prospective borrower. There have been many pieces of legislation to address this issue and keep the lending industry more honest, although its success is debatable.
The information contained in a credit report is maintained by one of three credit reporting agencies. Businesses report information to these agencies, who then compile a report that can be used by mortgage lenders and others who offer credit lines.
Up until very recently, there were a number of hurdles that made it difficult and costly for a consumer to view their credit report. It is very easy for an error to end up on your credit report and without being able to easily and inexpensively check, many consumers were penalized for these mistakes when they applied for a mortgage or loan.
The Fair and Accurate Credit Transactions Act addressed this issue and requires that each of the three credit reporting agencies provide consumers with one free copy of their credit report every year. However, in some states, the credit reporting agencies have fought this law by making it more difficult and complicated to receive these reports.
Another big part of the Fair and Accurate Credit Transactions Act is aimed at preventing identity theft. Under the Fair and Accurate Credit Transactions Act, consumers who think they might be about to be the victim of identity theft can place a fraud alert on their credit report, ensuring that potential creditors are more diligent in checking ones identity and providing some recourse if identity theft occurs. It also set up some red flag rules, which were to be developed by the credit industry to help detect fraud, although these have not been fully implemented.
The Fair and Accurate Credit Transactions Act also sets up some rights for those who have been the victim of identity theft. The credit reporting agencies are now required to block cases of identity theft from being visible on credit reports, providing the consumer has provided sufficient evidence of the identity theft. The credit industry is also required to be more corporative when investigating identity theft.
The law also requires that credit card merchants print no more than the last five digits of a credit card on a receipt.
The effectiveness of this law and others that address the credit and mortgage industry are highly debatable and many institutions deliberately try to find ways to get around these law.
A Credit Score is a numerical value between 300 and 850 that is used by lenders to determine the risk offering someone a loan. Credit scores are based off of a number of factors, including the number of different lines of credit a person has, their payment history, and how long they have had credit. When applying for a mortgage, credit scores are one factor that are considered by mortgage lenders, so it is important to understand the relationship between credit scores and mortgages.
Credit scores are not exactly new and have been around for many years. The FICO credit score is the most common type used, but there are others as well, specifically those offered by the three credit reporting agencies. However, up until relatively recently, the average consumer was not able to see their credit score. This changed in 2003 with the passage of the Fair Credit Reporting Act, which required credit reporting agencies to provide consumers with their credit score for a reasonable fee.
There are many factors that goes into a credit score and a persons debt level is actually not what the credit score is predominantly based upon. Instead, only about 30% of the credit score is based off of a persons current debt, with more weight being placed upon how the person handles debt, as well as their credit history and payment history.
In times past, getting a home mortgage was a much more personal process. The loan officer took the time to get to know the person and made a subjective decision based upon the information available to them. Today, however, much of this personal touch has been lost, replaced by mathematical formulas that are processed by computers. These formulas take into account the persons credit history, their credit report, and their credit score, determining mathematically the risk of offering the prospective lender a home mortgage.
Since so much of the mortgage approval process has been automated, it is essential to have a good credit report and as high of a credit score as possible. Studies have been shown that the higher a credit score is, the lower the mortgage rate offered will be.
For example, according to myfico.com, in 2007, a person with a credit score between 760 and 850, which is considered to be very good, received an average interest rate of 6.3%. A person with a credit score between 500 and 579, on the other hand, received a interest rate of 9.9%. This shows the importance of having a high credit score before applying for a home mortgage.
Since having a high credit score is such an important factor when applying for a mortgage, it is a good idea to spend time fixing any areas and maintaining a healthy credit score before applying for a mortgage.
One of the most important steps of maintaining a healthy credit score is taking care of any errors on your credit report, which even though they may simply be a mistake, such as a creditor not reporting a payment. Even though the mistake is not your fault, it still affects your credit score the same, so finding and fixing errors on your credit report is essential.
Paying bills on time is also extremely important to help maintain a healthy credit score and is one of the main factors prospective mortgage lenders consider when considering a mortgage application. If you have missed a payment, always make sure all of your payments are up to date before applying for a mortgage or other type of loan.
It is also important to pay down your credit lines based upon the amount owed and interest rates of the credit line. For instance, it is important to pay down those credit lines with higher interest rates sooner, rather than later, which not only helps your credit score, but also helps you save money.
Credit scores are a numerical value between 300 and 850 that is based upon a persons credit report. The credit score is intended to provide prospective lenders with a way to evaluate a persons creditworthiness, with credit scores between 760 and 850 being classified as the best. Credit scores are used by many different types of lenders, with the mortgage industry usually relying very heavily upon credit scores. Having a high credit score can be very important when applying for a mortgage and getting a good interest rate, especially in today’s market where lenders are much more careful about who they lend too.
There are several companies that offer credit scores, including each of the three different credit reporting agencies, but the credit score compiled by Fair Isaacs Corp, called a FICO score, is the standard in the lending industry.
While credit scores have been around for over fifty years, it was not until 2003 that the average consumer could easily and inexpensively view their credit score. This came as part of the Fair Credit Reporting Act of 2003, which required all credit reporting agencies to provide individuals their credit reporting score at a fair price. Now, credit scores are available for between $6 and $16.
Credit scores are based upon the information in a persons credit report, so it is not possible to directly change your credit score if there is a problem. Instead, it is necessary to fix problems with your credit report, which will in turn raise your credit score. This is why it is so important to regularly check your credit report for errors and fix them as soon as possible.
As a consumer, it is also important to pay all bills on time and not max out your credit lines. This is because credit scoring agencies place more emphasis on your payment history than they do on your level of debt. Late payments, especially those sent to a collection agency, can have a very negative impact on a credit score.
Requesting new lines of credit too frequently can reduce your credit score, so instead it is better to try to limit your requests for new credit to as short of a time period as possible. This is especially important when trying to repair bad credit, because many people will begin applying for each credit card offer they get, but this actually lowers a persons credit score.
It is also important to balance your debt in a smart and efficient manner. In another words, pay off debts that have higher interest rates or less favorable terms first and try to avoid transferring debt among credit lines too often.
Since a big part of having a good credit score involves using your credit responsibly, most loan officers suggest using your credit, but not exceeding 30% to 50% of your credit limit. Of course, this should be taken with a grain of salt, because it is in their best interest for you to use credit.
Another factor that goes into a credit report is the length of your credit history. Rather than canceling credit cards you are not using, it is typically better to simply destroy the credit card so you can not use it, but keep the account open. This way you can extend your credit history, without actually using it. Instead, begin using debit cards, which offer the same functionality as a credit card would, without the extra fees.
Having a high credit score can mean the difference between getting a good interest rate and getting a great interest rate. A low credit score can quite literally cost you a great deal of money, so it is important to take measures to improve and maintain a healthy credit score.
There are usually a number of factors that a lender will consider when deciding whether or not to offer someone a mortgage. For many lenders, a persons credit score is a very important consideration. Credit scores are a number between 300 and 850, which represents how credit-worthy the individual is.
Lenders and merchants have been using credit reports for thousands of years, which is basically information about a persons borrowing and spending habits that is shared among businesses. However, the credit score was not developed until 1958, when the Fair Isaac Corp implemented a system to analyze credit reports and rate them on a numerical scale.
As is the case with a credit report, credit scores are intended to provide a non-discriminatory means of evaluating a persons creditworthiness, so race, gender, and religion do not come into play.
Since the development of the Fair Isaac Corp credit scoring system, which is called a FICO score, several other companies have developed their own credit scoring system, but none have become more popular than the FICO Score.
While each of the three credit reporting agencies are required to provide a free copy of your credit report every year, there is no such requirement for your credit score. Instead, consumers must purchase their credit score, which typically costs between $6 and $16. Each of the credit reporting agencies also offer a proprietary credit score, but these scores are different than the credit score offered by the Fair Isaac Corp.
There are a number of different factors that go into a FICO credit score, which is based off of information from a each of the three credit reporting agencies. A persons FICO score considers several different factors and rates people on a scale between 300 and 850, with 850 being the highest credit score possible.
The following factors are considered when generating a credit score:
Payments:
Length of Recorded Credit History:
Different Types of Credit:
How Much is Owed:
New Credit Lines:
Each of the above factors is considered by the Fair Isaacs Corp when they generate a persons credit score. Since there are so many different factors, it is very easy for a mistake on a credit report to result in a lower credit score, which is why it is so important to regularly check your credit score for errors.
There are three different credit reporting agencies, which provide all of the Credit Reports. These companies collect information into a single database and then resell it to interested banks or lenders.
These three companies, Experian, Equifax, and TransUnion, all provide the same report, but it is possible that a discrepancy could show up on one, which might not be visible on the others. However, once it shows up in the database of one of the credit reporting agencies, the error will subsequently be transmitted to the other two agencies.
As a result of how easy it is for a discrepancy to propagate itself among the three credit reporting agencies, it is important to regularly check all three and fix any errors as they arise. Checking your credit report is often one of the first ways that you can tell if you have been the victim of identity theft as well,
Each person is eligible to receive one copy of their credit report for free from each of the three companies every 12 months. One of the easiest ways to get a free copy of your credit report is to use annualcreditreport.com. You will have to create an account at annualcreditreport.com, then select which credit agency you want to send you the report.
However, it is not a good idea to get all three reports at once. Instead you would want to receive one copy and review it, spreading out all three over the course of a year. They are supposed to share their information, so fixing an error at one agency should fix it at the other two.
Always remember to keep track of who you have already asked for a credit report, so you can get all three free credit reports every year.
Errors can occur because of several reasons, but it is most often because a creditor did not record a payment. In this event, even though you paid the debt, it is reported as a late or missed payment, which will hurt your credit score. If you find an error like this, it is important to act on it as soon as possible.
First, collect all the documentation you can to show that you paid the bill or debt. This includes check stubs, bank statements, and any letters from the creditor. Once you have the documentation, you will need to send a letter explaining the problem to both the credit reporting agency, as well as the creditor. Along with the letter, you will have to send your personal information, such as name, address, birth date, and social security number. It is a good idea to speak with the creditor as well, because they can often fix the error on their end quickly.
It is important to be careful when fixing errors though, because creditors take into account how often the credit report has been accessed. So, it is possible to raise alarms if too many people run your credit while you are fixing the error. If at all possible try to fix the problem as soon as possible, so the people that are accessing your credit report to fix it are not get stretched out over an extended period of time.
Once the error has been fixed, it is very important to ensure that it has been removed from your credit report.
When applying for a loan or mortgage, many lenders will charge the borrower for the credit report. If they charge more than $20, then they are very likely being dishonest, because this is the standard rate. Since checking the borrowers credit report is often the first thing a creditor does, it is important to know whats on your credit report and fix as much as you can before applying for the loan.
In regards to current debt and outstanding payments, it is a good idea to pay these down as much as possible before speaking with a lender. It is also possible that there may be a mistake on the credit report, which even if you have documentation for, you bank would not overlook.
One of the most important things a prospective homeowner can do to improve their chances of receiving a mortgage is to reduce the amount of debt on their credit report. This can be a great first step to new home ownership.