Cal Coast Quarterly Newsletter

• Jun. 08
• Sept. 08

Miscellaneous Docs

Search My Loan

Credit Library & FAQs

What is a credit score?
A credit score is a complex mathematical model that evaluates many types of information in a credit file. A credit score is used by a lender to help determine whether a person qualifies for a particular credit card, loan, or service. Most credit scores estimate the risk a company incurs by lending a person money or providing them with a service –– specifically, the likelihood that the person will make payments on time in the next two to three years. Generally, the higher the score, the less risk the person represents.

How can I get my credit score?
You can purchase a credit score by contacting one of the nationwide consumer credit reporting companies listed below. Or you are entitled to a free report once a year by going to www.annualcreditreport.com

Equifax —www.equifax.com
Experian —www.experian.com
TransUnion —www.transunion.com

What factors influence your credit scores?

Various factors determine your credit score, including the following:

• Payment History
• Outstanding Debt
• Length of credit history
• Severity and frequency of derogatory credit information such as lates, collections, bankruptcies, charge offs, and public records.
• The proportion of balance in relation to your credit limit on credit cards.
• The total balance owed on your credit report.
• The number of inquires you have in the last 12 months.
• Types of credit account (i.e., revolving vs. installment).

Maximize your credit score before applying for a mortgage loan.
Buying a home is probably the single largest investment most people make in a lifetime. By preparing yourself and your credit profile before a home purchase, you can ensure a smooth finance process and can potentially save thousands on your loan.

Start by checking your credit report through your loan agent or on www.annualcreditreport.com. Keep in mind if checking your own credit online through one of the consumer websites, such as www.annualcreditreport.com or www.freecreditreport.com you are not getting a Mortgage Credit Score; you are getting a Consumer Credit Score. When you go to a mortgage company or bank the reports they use will have a different score model that the ones you obtain online. Consumer Credit Scores are generally going to be higher than Mortgage Credit Scores.

To get the best possible mortgage rate, make sure your credit history is healthy and accurate. Credit scores above 700 are likely to qualify you for most prime loans. If your credit score is not quite 700 or above, focus your efforts on paying bills on time, reducing your debt balances, avoiding new inquiries and clearing negative inaccuracies from your credit report.

Make sure the information on your credit report is correct and fix any problems you discover. Give yourself 30-90 days for correcting inaccuracies. You can learn more about the dispute process by going towww.annualcreditreport.com.

If you have already started the loan process, ask your loan agent our Rapid Rescoring service that can expedite updates or inaccurate data usually within 2-5 days.

What factors affect your credit scores?
The basic credit scoring formula takes into account several factors from your credit report. The impact of each element fluctuates based on your own credit profile. The mains factors are:

Improving your FICO® credit score

It’s important to note that raising your FICO credit score is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time. See how much money you can save by just following these tips and raising your credit score.

Payment History Tips

Pay your bills on time.
Delinquent payments and collections can have a major negative impact on your FICO score.

If you have missed payments, get current and stay current.
The longer you pay your bills on time, the better your credit score.

Be aware that paying off a collection account will not remove it from your credit report.
It will stay on your report for seven years, and continue to negatively impact your score. It is always better to negotiate a deletion of the account with the collection agency before paying it. Only a deletion of the account may improve your score, depending on your credit profile.

Keep balances low on credit cards and other "revolving credit".
High outstanding debt can affect a credit score. Try to keep your credit card balance below 30% of the credit limit.

Pay down your credit card balance.
The most effective way to improve your credit score in this area is by paying down your revolving credit accounts. Or, spread the balances on each credit card so none of your cards have high balances. In other words instead of having one credit card maxed out, spread the balance to several cards, so the balance to high credit ratio is lower on each account.

Don't close unused credit cards as a short-term strategy to raise your score.
This may lower your credit score because it is taking away the credit history that you have established on those accounts, and eliminating the available high credit on those accounts.

Don't open a number of new credit cards that you don't need, just to increase your available credit.
This approach could backfire and actually lower your credit score.

Length of Credit History Tips

If you have been managing credit for a short time, don't open a lot of new accounts too rapidly.
New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

New Credit Tips

Do your rate shopping for a given loan within a focused period of time.
FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Re-establish your credit history if you have had problems.
Opening new accounts responsibly and paying them off on time will raise your credit score in the long term.

Note that it's OK to request and check your own credit report.
This won't affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers. Types of Credit Use Tips

Apply for and open new credit accounts only as needed. Don't open accounts just to have a better credit mix - it probably won't raise your credit score.

Have credit cards - but manage them responsibly.
In general, having credit cards and installment loans (and paying timely payments) will raise your credit score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.

Note that closing an account doesn't make it go away.
A closed account will still show up on your credit report, and may be considered by the score.

How long will a foreclosure affect my FICO score?
A foreclosure remains on your credit report for 7 years, but its impact to your FICO® score will lessen over time. While a foreclosure is considered a very negative event by your FICO score, it's a common misconception that it will ruin your score for a very long time. In fact, if you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as 2 years. The important thing to keep in mind is that a foreclosure is a single negative item, and if you keep this item isolated, it will be much less damaging to your FICO score than if you had a foreclosure in addition to defaulting on other credit obligations.

How will my FICO score consider a bankruptcy?
A bankruptcy will always be considered a very negative event by your FICO® score. How much of an impact it will have on your score will depend on your entire credit profile. For example, someone that had spotless credit and a very high FICO score could expect a huge drop in their score. On the other hand, someone with many negative items already listed on their credit report might only see a modest drop in their score. Another thing to note is that the more accounts included in the bankruptcy filing, the more of an impact on your score.

Credit inquiries

What are inquiries?
An inquiry is a record of someone checking your credit information. Inquiries come in two distinct categories: "hard inquiries" that occur when a business views your credit report for the purpose of an application and "soft inquiries" that occur when your credit is checked for other reasons. If you apply for a new credit card, a hard inquiry record will appear on your credit report and may impact your credit. When you check your own credit report, or when it is checked for a pre-approved marketing purpose, it is considered a soft inquiry and will not harm your credit score.

How long do they last?
Most hard inquiries remain on your credit report for two years from the original placement. All inquiries must stay on your credit report for at least a year.

How can I limit who makes inquiries?
You may request that consumer reporting agencies do not distribute your name on lists used by creditors and insurers to make unsolicited offers of credit and insurance. Requests can be made by telephone or online.

Phone: Call (888) 5-OPT-OUT (Will last for two years).
Online: www.optoutprescreen.com.

Not all credit inquiries count toward your FICO® score.
When you check your credit report, you may notice that a number of credit inquiries have been made, sometimes from businesses that you don’t know. But the only inquiries that count toward your FICO score are the ones that result from your applications for new credit.

Inquiries that count toward your FICO score.
When you apply for a mortgage, auto loan or other credit, you authorize the lender to request a copy of your credit report. These types of inquiries, prompted by your own actions, appear on your credit report and are included in your FICO score.

Inquiries that don’t count toward your FICO score.
Your own credit report requests, credit checks made by businesses to offer you goods or services, or inquiries made by businesses with whom you already have a credit account do not count toward your FICO score. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO score.

Your FICO score is not affected when you check your credit.
Checking your credit reports regularly to be sure they are accurate and error-free is a good idea. In fact, maintaining accurate credit reports is a part of good credit management, which can help to improve your FICO scores over time. Checking your score at www.annualcreditreport.com or any other consumer websites does not count as an inquiry and will not hurt your FICO score.

How credit inquiries are factored into FICO scores.
There are five types of information used to calculate a FICO score at any given point in time. Each type of information counts as a percentage of a total FICO score:

Payment history = 35%
Amounts owed = 30%
Length of credit history= 15%
New credit (inquiries) = 10%
Types of credit in use = 10%

These percentages are based on the importance of the five categories for the general population. For particular groups, such as people with relatively short credit histories, the importance of the categories may differ.

Inquiries are a subset of the "new credit" category shown above, which accounts for 10% of the total FICO score. Their importance depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. What's important is the mix of information, which varies from person to person, and for any one person over time. On average inquiries affect your scores anywhere from 5-10 points. But, remember, this depends on your specific credit profile.

Rate Shopping / 30-day Grace Period
Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you’re only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

Improving your FICO score.
If you need a loan, do your rate shopping within a focused period of time, such as 30 days. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.