The Nuts and Bolts of Credit

By
Mortgage and Lending with Mortgage Loan Finders

NUTS & BOLTS OF CREDIT

 

 

CREDIT PURPOSE

 

  • TO DEMONSTRATE ONE'S ABILITY TO REPAY
  • TO HAVE GOODS OR SERVICES TODAY WITH THE FLEXIBILITY OF REPAYING AT A LATER DATE
  • TO DEMONSTRATE FUTURE PAYMENT ABILITY

                       

THE 3 MAJOR CREDIT REPORTING BUREAUS:

 

*  EXPERIAN  1-800-682-7654    http://www.experian.com/

 

*  EQUIFAX  1-800-685-1111   http://www.equifax.com/

 

*  TRANSUNION  1-888-916-4213   http://www.transunion.com/

 

CREDIT REPORTING

 

  • CREDIT SCORE

credit score is a numerical index which represents an estimate of an individual's financial creditworthiness.  It is based on a subset of the information in an individual's credit report.  Lenders, such as banks and credit card companies, use credit scores to determine credit limits and interest rates.

  • There are several agencies that report consumer information
  • The best known credit score in the United States is the FICO score
  • The FICO score is a mathematical formula developed by Fair Isaac Corporation

 

FICO SCORE

 

  • FICO scores and its variants are designed to measure the risk of default, by taking into account various weighted factors:
  • 35% punctuality of payment in the past
  • 30% capacity used, i.e., ratio of current revolving debt (e.g. credit card balances) to total available revolving credit (e.g. credit limits)
  • 15% length of credit history
  • 10% types of credits used (installment, revolving)
  • 10% amounts of credits obtained in the recent past
  • The above percentages are approximate.  Current income and employment history do not influence the FICO score.

 

 

 

 

FICO CREDIT SCORES

 

  • 800 AND ABOVE = A
  • 720 TO 799 = B
  • 690 TO 719 = C
  • 640 TO 679 = D
  • 620 TO 639 = E
  • 580 OR BELOW = F

 

TYPES OF CREDIT

 

  • INSTALLMENT  -  SAME PAYMENT EACH MONTH (EX: CAR LOAN)
  • REVOLVING - VARIABLE PAYMENT BASED ON THE BALANCE, A minimum monthly payment is calculated
  • MORTGAGE - MONTHLY PAYMENT FOR REAL ESTATE

 

TIMELINESS OF PAYMENT

 

  • CREDIT RATINGS 1 "EXCELLENT" THROUGH 9 "VERY BAD"

 

1   PAID AS AGREED ON TIME

2   30 OR MORE DAYS PAST DUE

3   60 OR MORE DAYS PAST DUE

4   90 OR MORE DAYS PAST DUE

5   120 OR MORE DAYS PAST DUE

6   COLLECTION

7   WAGE EARNER PAYMENT

8   REPOSSESSION

9        UNCOLLECTABLE OR CHARGE OFF

 

TYPES OF ACCOUNTS

 

  • I  =  INDIVIDUAL
  • J  =  JOINT
  • A =  AUTHORIZED USER
  • C = CO-SIGNOR

 

CREDIT COLLECTIONS

  • When a creditor has sent an unpaid bill to a collection agency.  This collection stays on the credit report for seven years even if the bill is paid
  • Judgments Court ordered payments remain on the credit report even if satisfied

 

 

 

CREDIT INQUIRY

 

  • Each time a persons applies for credit

 

POSITIVE CREDIT FACTORS

 

  • MAKING ALL PAYMENTS ON TIME AS SCHEDULED
  • LIMIT INQUIRIES
  • KEEPING A MINIMAL OF REVOLVING CREDIT LINES
  • REDUCING THE BALANCES ON OPEN ACCOUNTS
  • COMMUNICATING WITH CREDITORS

 

NEGATIVE FACTORS

 

  • COLLECTION ACCOUNTS
  • HIGH CREDIT BALANCES
  • LATE PAYMENTS
  • BANKRUPTCY

 

STEPS TO REPAIRING CREDIT

 

1.      RETRIVE A REPORT FOR ALL BUREAUS AND DISPUTER ERRORS

2.      REVIEW THE DATE LAST REPORTED (IF THE CREDITOR HAS NOT REPORTED IN THE LAST TWO YEARS AND YOU PAYOFF THE DEBT, IT WILL HURT YOUR SCORE)

3.      MAKE PAYMENTS ON TIME

4.      OPEN SECURED ACCOUNTS

5.      CLOSE ACCOUNTS THAT YOU ARE NOT USING

6.      WORK WITH A CREDIT COUNSELOR BUT REMEMBER ONLY YOU CAN REPAIR YOUR CREDIT

 

THE KEY

 

  • THE KEY TO CREDIT IS MANAGING YOUR CREDIT
  • ONLY YOU CAN CONTROL IT
  • CREDIT IS ONE OF THE MOST IMPORTANT FACTORS IN HOMEOWNERSHIP

Comments (1)

Kristal Davis
Davis Insurance & Fin. Srvcs. LLC dba Davis Insurance Group - Indianapolis, IN
good information to know
Mar 06, 2007 08:58 AM