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How to know what is in your credit report.
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In today’s recessionary economy, it is even more critical that you know what is in your credit report. We’ve all had the experience when we were buying a car or seeking a home mortgage or other loan situation of being asked about some item in our credit report that surprised us. Maybe something that occurred years ago or an incident we don’t even recall. Even worse, something we know is incorrect.
How do you prevent these surprises? By keeping track of what is in your credit report. That is easy to do. The Federal Trade Commission (FTC) requires the credit reporting agencies, commonly known as credit bureaus, to give you your report FREE once a year. You can even do it online. Go to www.annualcreditreport.com and follow the instructions. You can view your reports online and print them out.
That’s easy enough, but there is a bit of a hitch. There are three credit bureaus—Experian, Equifax and TransUnion. There are very likely to be some minor differences between the three reports. Not all companies use or report to all three. This means some items may be on your Equifax report, say, but not on you Experian report. And if you’re buying a car, the dealer may use only Equifax, so what he sees depends on which bureau he uses.
Mortgage companies and banks will always look at all three when you’re applying for a home mortgage or equity line.
In rare cases, the differences between the three can be major. And in applying for a mortgage, that can raise a red flag for the mortgage company. So when you review your reports, what should you do if you find major discrepancies between them?
If one shows a debt that you have not incurred—that is absolutely incorrect—you should write the credit bureau immediately, stating them that you dispute the item. They are then required by law to investigate the item and respond to you in 30 days. At the same time, tell the company that claims the dept you are disputing the dept, in writing. If the Bureau’s investigation supports your claim, they must remove the item and provide you, in writing, all information about the incorrect dept, including contact information of the company that gave them the bad information. They will also send you another free copy of your report showing that the item has been removed.
If you find an item that is not incorrect but not up to date—say a debt you paid off but the report shows it still current, go through the same steps. If the company declines to correct the information, you may write a 100 word statement explaining the situation to be included in your file. Attaching a copy of a paid-up document would be good as well.
You can then ask that the statement be included with your report. You may also ask that it be sent to anyone requesting your report recently, but you will have to pay a fee for this.
There’s one other important feature you will see in your reports. This is your FICO score.
This is the number many lenders use to determine the interest rate they will charge you, or even if they will give you a loan.
This unique name stems from the company that invented the score—the Fair Isaacs Corporation—hence FICO. The process uses a mathematical model to factor in five areas of your credit history: payment history, current level of indebtedness, types of credit used, length of credit history and new credit.
It breaks down like this:
FICO scores range from 300 to 850. Obviously, the higher your score, the better. Fair Isaacs says the median score ( that is, the number for which there are as many above as below) is 723, with 27 percent of Americans having scores between 750 and 799. Most lenders consider a score below 650 as risky, and so would either decline to offer credit or hit you with a very high interest rate. Here is the difference your FICO score can make in your interest rate (and payments) on a 30-year fixed rate home mortgage of $300,000.
FICO Rate (%) Payment ($)
760-850 5.711 1,743
700-759 5.933 1,786
660-699 6.217 1,841
620-659 7.027 2,001
580-619 9.247 2,467
500-579 10.253 2,689
Source: Fair Isaacs Corp. |
In fact, in today’s mortgage market, it’s questionable if you could get a loan if your score were blow 750.
Fair Isaacs offers a rate and payment calculator that is updated daily with current mortgage rates for 30 year fixed, 15 year equity and auto loans. You can take advantage of this at their www.myfico.com site.
But like everything to do with credit reporting, there is a kicker in this. As you now know, there are three credit bureaus. And wouldn’t you know, they all have their own version of FICO. Yes, they are similar, but the score a lender gets from Experian will be different from one he gets from Equifax. For example, remember Fair Isaacs says the median score is 723? Experian says the average is 678. That company uses its own version of FICO, as does Equifax. TransUnion uses a version closest to the basic Fair Isaacs model.
So when you go in for a loan, ask your lender which bureau they use. If your score comes out lower than you think it should, ask them to check the other credit bureaus. If they decline, show them copies of your credit reports from those reporting agencies.
As you have seen, a bit of assertiveness, and knowing your FICO score, could save you a lot of money.
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