About Credit Scores
Credit scores are numeric values that rank the risk of default by an individual according to their credit history at a given point in time. Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available, and other factors. According to Fannie Mae and Freddie Mac, two of the largest purchasers of home loans from mortgage lenders, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan.
Many lenders use credit scores to help evaluate loan applications. A credit score, however, is just one of many factors considered in the underwriting process. Lenders look at the entire picture. Even when a credit score is low, lenders often try to find other factors that could overcome the negative credit issues and satisfy their lending requirements.
Three national credit bureaus (Equifax, Experian and Trans Union) collect credit information and provide reports and credit scores to lenders. Lenders often use a "merged" credit report, considering the information and scores provided by all 3 of the credit bureaus.
Different lenders may have different standards for loan approval, based on credit scores and other factors. Because credit bureaus don't currently provide credit scores to consumers, it's important to talk with lenders about how your credit profile fits with their requirements and loan programs.
Have you checked your credit report?
Many people who think they have good credit are surprised to find issues in their credit reports.
Sometimes that's because they don't understand how borrowing and bill-paying habits affect their credit rating. And sometimes it's because the credit bureau has outdated or incorrect information, or because another consumer's information is mixed with their reports due to similar names or other errors.
It's a good idea to check your credit report every year or so. It's especially important if you plan to apply for a mortgage or another major loan to do so before you apply, in order to improve your ability to obtain a loan or appropriate terms.
If you find mistakes in your credit report, you can take steps to correct them. And if you find issues you didn't know about, you can learn how to avoid those kinds of issues in the future.
You Have the Right to Receive Your Credit Reports
You have the right to get a copy of your personal credit report at any time.
By law, if you have been turned down for a loan or credit card within the last 60 days based on the information in a credit report, you are entitled to a free report from the credit bureau(s) that provided the report to the lender. You're also entitled to 1 free report per year if you're on welfare, are unemployed and plan to look for a job within 60 days, or your report is inaccurate because of fraud.
Otherwise, there may be a fee for each report you request (about $8.00; charges may vary by state).
How to get your credit report:
There are 3 national credit bureaus that provide reports to lenders. You need to make a separate request to each of them, usually in writing. Experts advise obtaining your credit report from each bureau, as the information may vary. Some credit grantors do not report to all three credit bureaus.
Contact the numbers or Web sites below for specific instructions:
Credit Information Services
P.O. Box 105496
Atlanta, GA 30348-5496
Experian (formerly TRW)
National Consumer Assistance Center
P.O. Box 2104
Allen, TX 75013-2104
Trans Union LLC
Consumer Disclosure Center
P.O. Box 1000
Springfield, PA 19022