What You Need to Know About Your Credit Score
By Loral Langemeier (as seen on the Dr. Phil Show and website)

What's really in your credit report?
The credit report is a history of everything you buy, borrow, and acquire with some form of credit. It's a list of "Trade Lines." These are the people you made a promise to when you said you'd pay them back. "If you let me drive this car off the lot, I promise to pay you for it over time, at the monthly payment that you and I have agreed to". Your credit report history shows each entity that reports to the credit bureau, whether it's a mortgage, credit card, or furniture store, and each has what is called a trade line. Trade lines tell how much you have borrowed, as well as how your history of payment has gone. It will show if your payments have been on time or if they were 30, 60, or 90 days late.

Where do I find a copy of my credit report?
There are several choices for getting copies of your credit report. One of the best ways would be to find a mortgage broker whom you are interested in working with and have them run it for you. They can usually do this for free or for as little as $25, and as a bonus they will usually give a free analysis as to what the report means to you. You may also obtain a free credit report with each bureau once per year however a mortgage broker will be able to interpret the score and explain how your current standing effects you.

How often should I check my credit report?
Especially while in the process of trying to improve your credit, it is recommended that you check and correct your credit score every sixty days just to make sure that nothing shows up on your credit report that you were unaware of. There are cases where something like a small medical bill that you thought was covered by insurance can go unpaid and then become a "collection", which negatively impacts your credit score.

How long do items stay on my credit report?
Information, both positive and negative, stays on your credit report for approximately seven years. Bankruptcies can stay there for up to ten years. Despite this fact, lenders really look most closely for relevant information that has appeared in the last 24 months. You may have had a collection that you paid four years ago, but if in the last two years you have paid all of your bills on a timely basis, creditors will likely disregard that collection. However, if that collection is unpaid and is still open, this reflects negatively on your credit report. Your two years of clean credit does not effectively start until you have paid that collection off.

What credit score do I need to get a mortgage?
To get a mortgage at the best rate with the lowest possible down payment your credit score should be between 620 and 650. A lot of people have credit scores approaching 700 and they get even better deals. If your credit score is under 600, there are loan programs out there that will accommodate you, but they generally require a larger down payment and a higher interest rate. This is the lender's way of saying that your lower score reflects something derogatory on your credit report. Therefore, they're taking more of a risk by giving you a loan.

FHA is an exception. They have a 3% down payment program and there is no minimum score, although it's nearly impossible if your score is below 580, or if you have unpaid collections and judgments.

What if there's something on my report that is incorrect or not mine?
One of the reasons to check your credit report regularly is that many companies will only report that you have an outstanding debt, but will fail to report once you have paid it off. In situations like these, or when you have genuine mistakes on your credit report, you need to contact the agency in order to fix the error.

The best thing to do in this situation is not to call or fax the credit bureau, but actually to write a letter. With your letter, thoroughly prove that the debt is paid with documentation. A standard credit correction letter should include a cover letter, a copy of your credit report with the mistake circled, and written documentation that the debt is paid or is simply not yours.

Once this letter is received it will generally take 30 to 60 days for the credit bureau to remove the mistake. Keep copies of all of the information that you send to the bureau, and if after 30 to 60 days the mistake still shows up, call the agency and say, "30 to 60 days ago I asked you to remove this error from my report and you didn't do it." Most of the time they will just drop it off your report.

Ready GO!

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