Understanding Your Credit Score

Your credit scores can CHANGE EVERY DAY! You may have recently been told what one or another score was… forget about it, they're already old. And since there are three bureaus that report your scores, we need current updates from all three.

Credit scores are also traditionally known as FICO scores, and are named after Fair, Isaac and Company, the original creator of this scoring system. The system was designed to compare your credit history against a database of financial habits and behaviors of the general borrowing population. Using statistical analysis, the system looks for patterns, and considers how LONG AGO problems occurred, and determines the LIKELIHOOD that you will repay your debt to the lenders without loss.

Experian, TransUnion, and Equifax, the three major credit repositories (or bureaus,) each have a score calculated for each customer in their credit files. Each person’s score is re-calculated automatically every time new information is reported to each bureau EVERY DAY. Each bureau has a different score for each person because each bureau gets different information reported to it on a daily basis.

These scores show who is considered more, and who is less risky as a loan candidate. Although their statistical calculations determine the level of risk associated with lending to an individual, each bureau may have different opinions about each individual. In addition, different LENDERS have different opinions about what certain scores mean from different bureaus, and how old the scores are! If you had ever heard what one of your scores were a week ago, even if it is still close, it means NOTHING today to a new lender!

Every day the scores may change between the three, and most lenders and loan brokers utilize the primary income-earner’s middle score for analysis (although some programs use the "primary repository" instead, while others use an "average".) Whenever there are two borrowers, there are six (6) scores that need to be considered with each loan request! 30 years of statistics have shown that a middle score of 600 means the mortgage lender/investor will lose money on one out of every eight loans it makes. (For more information on Credit Scoring than you ever imagined you’d want, visit FICO and read from the original company!)

Today there are only a few funding sources that will venture to lend money to folks with scores below 600.

Statistics show that a score of 700 means the mortgage lender/investor will lose money on one out of every 1,293 loans it makes!

Compare:

Scores below 600 = Lose money on 1 out of 8 loans,

Scores of 700 = Lose money on 1 out of 1,293 loans!

Which would YOU prefer to lend to if it was YOUR money?

How much interest would you have to receive to take the chance on the 600 score borrower?

What’s Included in My Credit Report?

Personal identification information including your name and all aliases, current and past residential addresses, social security number, birth date, and current and past employment information. This information is gathered from any credit applications you have previously filled out and the accuracy depends on the information you previously provided.

Credit account information including details about each trade line or account that you currently have open, when they were opened, the maximum credit limit, current balance, monthly payment and payment period, how many months the account has been reported, and whether the account is individual or joint. This information is also reported on all closed accounts.

Public record information is provided from federal district bankruptcy records, state and county court records, and includes any data related to federal or state liens or judgments, and may include overdue child support payments as well.

Credit provider inquiries. An "inquiry" occurs each time a creditor or authorized user pulls your credit report and the date and name of the entity pulling the report will be listed on your report. Inquiry information can remain on your credit report for as long as two years. Your simple "shopping around" can hurt YOU and can affect your score as well!

How is the credit score calculated?

When calculating credit scores, five (5) critical issues determine the analysis of your lendability. The factors are MORE than just how well you make your payments… in descending order, they are:

• Previous delinquency. People who have failed to make timely payments in the past tend to do the same in the future
• How leveraged a person will normally allow themselves to get. Someone who "maxes out" their limit credit cards is considered a greater risk than someone who doesn't
• How long a person has had credit, and how long they’ve successfully kept existing lines open. Fair, Isaac's model assumes people who have had credit for a long time are less risky.
• The number of credit inquiries. Excessive credit inquiries over a short amount of time implies desperation for money by the borrower, which is riskier and hurts your scores.
• The combination of types of credit. Borrowers are considered riskier if they have only a secured credit card, while those with varieties of current credit accounts (installment and revolving loans) are considered a safer credit risk. (Installment loans are the type when a person borrows money once and makes fixed payments until the balance is gone (like car loans and furniture loans,) while revolving loans let a borrowers make regular payments, and then re-borrow the money again (like with credit cards.)

Determining what is "a good score"

The credit scoring systems calculate a number roughly between 350 and 850. Anything above 660 is considered good. Scores between 620 and 660 requires lenders to need other compensating factors to lend to you with "preferred" rates. Scores below 620 can still qualify for financing, but you are certain to have tighter restrictions such as requiring more down payment if you're buying a home, or a higher interest rate, or both. There are funding sources that will touch scores much below 600 these days, however, the resulting rates will be much higher. We can do the loans with scores as low as 450 in some situations, if you require our help, please proceed to the on-line loan application.

What IF your score was 670?

Here are some graphics (taken directly from the Fair, Isaac and Co. website) to help illustrate a point:

Mortgage lenders use credit scores in addition to other risk assessment factors such as the amount of equity cushion available and the borrower's job/income stability. Other factors considered will be debt load and any other factor that could impact a borrower's ability to repay the debt. With higher credit scores, these other factors are less important, but as your score dips into the low 600's or further these other factors become major reasons whether or not you are ultimately approved for funding.

The results of credit scores in mortgage lending today

Credit scoring is not a perfect science. In fact, the bureaus are constantly trying to improve their statistical methods! Still, credit scoring has leveled the playing field for consumers and lenders alike. Before credit scores you might get turned down because an underwriter didn’t like your file or didn’t understand the credit you had… but not anymore. Using credit scores has eliminated much of the subjectivity in risk evaluation and underwriting. If a score of 680 or better means you are automatically approved as long as the other factors such as income and assets needed to close are met, it creates a very objective arena so consumers can expect fast, efficient, and ultimately more affordable loan products. Scores DO effect rates DRAMATICALLY.

If your loan is denied, it is your legal right to obtain a FREE copy of your credit report to ensure that the information is accurate before you seek alternative lending sources. Under the Fair Credit Reporting Act, you may not be charged for a copy of your credit report if you request it in writing within 30 days after being rejected for a loan. You can obtain a copy of your credit report only from the credit repositories that supplied your report to the creditor. You can contact the three credit repositories (bureaus) at the following addresses and phone numbers.

Equifax P.O. Box 740241 Atlanta, GA 30374-0241
800/685-1111
www.equifax.com

Experian P.O. Box 2104 Allen, TX 75013-0949
888/397-3742
www.experian.com

Trans Union Corp.
760 W. Sproul Road Springfield, PA 19064-0390
800/916-8800
www.tuc.com

Once you have reviewed your credit reports, if you feel that there is an error, you can contact the reporting company (the creditor) directly and ask them to send written letters to each of the three credit bureaus asking them to correct the error. You can also write a letter to each of the credit bureaus with detailed explanations of the errors and ask them to investigate the claims in question. Be sure to include your full name (including suffix), residence address, your social security number, date of birth, and your daytime telephone number. Review of the claims is tedious and often time-consuming, but you should eventually receive written notice of the outcome of each investigated claim from each bureau; however, it is a good idea to follow up with each bureau after a few weeks of submitting your letters. The entire process should take less than 60 days from start to finish.

If you disagree with the outcome of the bureaus' investigations, you can have the credit bureaus insert a testament from you, explaining why you feel there is an error on your credit report. This statement will appear on your credit report each time it is pulled in the future, and is free of charge.

You can find out more information about your rights by reading the Fair Credit Reporting Act (http://www.ftc.gov/os/statutes/fcra.htm)

What can I do to raise my scores

If the negative information on your credit report is accurate, there are several things you can do to improve your credit score.

First, find out why you were rejected and work toward a remedy.

If you lack credit history, open additional trade lines. It is usually easier to get approved for a gas card or department store card. Be sure to charge small amounts and then pay off the balance each month.

If you do not qualify for an unsecured credit card, apply for a secured card that requires you to deposit money in advance. In the event that you do not make your payments, the credit card issuer will keep the deposit. As is to be expected, the interest rate on these cards will be higher. Try to keep a small balance on this card each month and be sure to pay it off at the end of the month.

Pay down high balances. There is a higher risk associated with credit profiles that reflect balances near the credit limit. Try not to "max out" your credit cards. Maintaining approximately 1/3 balances vs. your actual limit on the card is best.

Close inactive accounts. If you have many accounts that you do not use, creditors will worry about the potential for you to charge your cards and get yourself into deeper debt. Try to keep open three to five of your lowest rate credit cards and close the rest that you do not use.

Make your payments on time so as not to accrue unnecessary interest and late charges. If you cannot make your payment on time, seek the advice of a professional debt counselor such as Consumer Credit Counseling Services. They can be reached at 800-577-CCCS or www.cccsintl.org

It's MORE than just paying your bills on time, as you can see from this recently published chart from Fair, Isaac's - paying your bills on time effects only 35% of your credit scores.

We can see however, paying on time and owing less on your credit cards is 65% of your score -- so you can do something about it!

Weigting of Factors in FICO score:

11 Steps to Repair Your Credit

1. Obtain your three credit reports.

2. Review the reports and locate the negative items.

3. Dispute the negative items with the credit bureaus.

4. Disputed items are removed or corrected. Items that were not re-verified are removed.

5. Negotiate with creditors and collection companies.

6. After negotiating and making payment, creditors delete the negative accounts or change them to a positive rating.

7. State the item you are disputing, but do not use dispute forms or file numbers provided by the bureau. This will cause fewer delays by the credit bureau asking for clarification.

8. Do not confirm the account if any information about the item is wrong.

9. Do not use letterhead (you don't want to raise any Red Flags).

10. Do not photocopy a fill in the blanks form letter (another Red Flag).

11. Send disputes during busy times of the year. For Example: The first to middle of November can cause a delay in verification because of Thanksgiving. Christmas rush for the creditor and the bureau can catch them before they can thoroughly investigate within a reasonable time. If they don’t respond within 30 days, the items gets cleared off your credit report!

Order a FREE consumer report "Dealing with Credit Bureaus" that includes:

• What the credit bureaus don’t tell you
• Steps to repair your credit
• Easier Items to dispute and remove from your credit report
• Techniques to improve your credit
• Sample letters to credit bureaus
• Sample letters to creditors and collection companies
• Your legal rights and how to enforce them
• And much more!

How to Avoid Foreclosure

When you miss your mortgage payments, foreclosure may occur. This is the legal means that your mortgage company can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, your mortgage company or HUD could seek a deficiency judgment. If that happens, you not only lose your home, you also would owe your mortgage company or HUD an additional debt. Foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future. So you should avoid it if all possible!

DO NOT IGNORE THE LETTERS FROM YOUR MORTGAGE COMPANY. If you are having problems making your payments, contact your mortgage company immediately. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help. Stay in your home for now. You may not qualify for assistance if you abandon your property.

Some of your options include the following:

• Special Forbearance. Your mortgage company may be able to arrange a repayment plan based on your financial situation. Your mortgage company may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently lost your job or your source of income or if you had an unexpected increase in living expenses. You must furnish information to your mortgage company to show that you would be able to meet the requirements of the new payment plan.
• Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay).
• Partial Claim. Your mortgage company may be able to work with you to obtain an interest-free loan from HUD to bring your mortgage current. You may qualify if:
• your loan is at least 4 months delinquent but no more than 12 months delinquent;
• your mortgage is not in foreclosure; and
• you are able to begin making full mortgage payments.

When your mortgage company files a Partial Claim, HUD will pay your mortgage company the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free and will be due if you sell or leave your property, or when your mortgage matures.

• Pre-foreclosure sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You may qualify if:
• the "as is" appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value;
• the loan is at least 2 months delinquent prior to the pre-foreclosure sale closing date; and
• you are able to sell your house within 3 to 5 months (depending on what your mortgage company agrees to).

An additional benefit to this option is the assistance you will receive with the Seller-paid closing costs.

• Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the mortgage company. This won't save your house, but it will help your chances of getting another mortgage loan in the future. You can qualify if:
• you are in default and don't qualify for any of the other options;
• your attempts at selling the house before foreclosure were unsuccessful; and
• you don't have another mortgage in default.

A housing counseling agency can help you determine which, if any, of these options may meet your needs. You should also discuss the situation with your mortgage company.

One last thing, beware of scams! Solutions that sound too simple or too good to be true usually are. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:

• Equity skimming. In this type of scam, a "buyer" approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The "buyer" may suggest that you move out quickly and deed the property to him or her. The "buyer" then collects rent for a time, does not make any mortgage payments, and allows the mortgage company to foreclose. Remember that signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.
• Phony counseling agencies. Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself, for free, such as negotiating a new payment plan with your mortgage company, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services call HUD-approved housing counseling agency. Do this before you pay anyone or sign anything.

Here are several precautions that should help you avoid being "taken" by scam artist:

• Don't sign any papers you don't fully understand.
• Make sure you get all "promises" in writing.
• Beware of any loan assumption where you are not formally released from liability for your mortgage debt and contracts of sale.
• Check with a lawyer or your mortgage company before entering into any deal involving your home.
• If you're selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer. You can contact your state's Attorney General, the State Real Estate Commission, or the local District Attorney's Consumer Fraud Unit for this type of information.

Bankruptcy

Chapter 7 bankruptcy is a liquidation proceeding. The debtor turns over all non exempt property to the bankruptcy trustee, who then converts it to cash for distribution to the creditors. The debtor receives a discharge of all dischargeable debts.

To file a Chapter 7 bankruptcy:

• You must reside or have a domicile, a place of business, or property in the United States or a municipality.
• You must not have been granted a Chapter 7 discharge within the last 6 years or completed a Chapter 13 plan.
• You must not have had a bankruptcy filing dismissed for cause within the last 180 days.
• It must not be a "substantial abuse" of Chapter 7 to grant the debtor relief. Generally speaking, if after you pay the monthly expenses for necessities there is not enough money to pay the remaining monthly debts, then granting a discharge would not be an abuse of Chapter 7.
• It would not be fundamentally unfair to grant the debtor relief under Chapter 7.

The most common reasons for consumer bankruptcy are:

• Unemployment
• Large medical expenses
• Seriously over extended credit
• Marital problems
• Large unexpected expenses

Order a FREE consumer report "Dealing with Bankruptcy" that includes:

• Differences between various Bankruptcy types
• Bankruptcy and your bills and cars
• Bankruptcy and your house
• Re-establishing your credit after bankruptcy
• Referrals to Bankruptcy attorneys
• And much more!
  
  
  

Bankruptcy Questions and Answers

I am a co-signer for a debt, how does bankruptcy affect my obligation?

If the debt is a dischargeable debt then you will not have to pay it. However, the cosigner will become primarily responsible for the debt. Be sure to list the co-signer as a creditor in your schedules as they have a contingent claim against you.

Can I keep my house after bankruptcy?

Depending upon which exemption scheme is selected and your circumstances, you may exempt up to $100,000 in equity. When calculating your equity you should use a value that is based upon a forced liquidation as opposed to the best selling conditions to arrive at a value for your home. Once you know the value, subtract the amount owed plus selling and transfer costs from the value to calculate the equity. In the depressed California market, liquidated properties are often valued less than what we like to think the property is worth.

Can I keep my credit cards after bankruptcy?

Under some circumstances you may keep your credit cards. There are many factors which must be considered. Some of those include the credit card balance at the time of the bankruptcy, what the credit card company is willing to do and your ability to pay the present and future credit card debt.

Will I lose my job?

No. Bankruptcy laws prohibits discrimination based upon a debtor filing for protection under the bankruptcy laws.

Can I go to jail if I file bankruptcy?

No. There are no debtor's prisons in the United States.

Will my employer find out about my bankruptcy?

Under normal circumstances, unless your employer is a creditor, your employer will not know.

Will bankruptcy stop a wage attachment?

Yes.

Will bankruptcy stop a judgment?

Yes. Most civil judgments are stopped by bankruptcy.

Will a bankruptcy remove a lien?

Under some circumstances once the bankruptcy proceedings have started, special motion can be filed to remove certain liens. It will take a bankruptcy court order to remove them. This is a complicated area of the bankruptcy law and an attorney should be consulted.

Will bankruptcy stop an eviction action?

Perhaps. However, this will only delay the inevitable. The owner is entitled to possession of his property and at best you will be able to remain in the property until you have received your discharge from bankruptcy or the landlord obtains an order from the bankruptcy court. I must caution you that if the only reason you filed the bankruptcy is to stop an eviction then this might be considered an abuse of Chapter 7. If the bankruptcy court finds that this is true then the court can immediately dismiss the bankruptcy and impose other legal and monetary sanctions on you.

Will bankruptcy stop a foreclosure?

Yes. However, a home is an asset usually secured by a deed of trust. The mortgage company is entitled apply to the court for relief from the automatic stay, the order preventing creditor action by virtue of the bankruptcy. Depending upon several factors, you may be able to prolong a foreclosure until you have received your discharge from bankruptcy. Usually, to keep a home that is in foreclosure you will have to make a deal with the note holder.

I am divorced, will bankruptcy wipe-out my obligation to pay community debts?

In general, you will be discharged from all dischargeable community debts. However, you should discuss this with your family law attorney to understand the other implications of the filing of a bankruptcy during the pendency of a dissolution action (divorce case). Also, remember that if you are discharged from community debts, your spouse is responsible for the entire balance owing on the debt. Put another way, they shift the responsibility on to you.

Are there any debts that I can't wipe out in bankruptcy?

Disclaimer:
This information deals with Chapter 7 consumer bankruptcy. Each state has its own bankruptcy laws, so you need to check with your state for details. Information dealing with Chapter 13 bankruptcy and consumer debt restructuring is not discussed in the above FAQs. The information contained in the following FAQs is provided for general information purposes only and is not intended to be a legal opinion nor legal advice nor is it intended to be a complete discussion of all the issues related to the area of Chapter 7 consumer bankruptcy. Every individual's factual situation is different and you should seek independent legal advice regarding specific information.

Can I get a mortgage loan if I’m facing Bankruptcy?

If you have equity in your house, you may be able to refinance your property and prevent your bankruptcy, or if you are in active Chapter 13, you may be able to stop your Chapter 13 proceedings. Once your BK is discharged, it normally takes 10 years for it to come off your credit report, however, we have loan programs available that allow you to get a loan even the next day after discharging the bankruptcy. Call us 877-233-5191, or go directly to the loan application page and start working on your financial future.