Credit Reports and Scores
Looking for more favorable mortgage terms? You’re in the right place. Here, you'll discover how your credit health influences loan options, uncover tips to boost your financial profile, and learn how to secure better rates for long-term mortgage savings.
Common Questions Answered: Your Guide to Credit Clarity
What is a Credit Report?
We like to think of your credit score as a financial report card that tells us how you manage your debts. This information is managed and provided by credit reporting agenciesIf you've ever applied for credit, loans, insurance, or a job, chances are you have a credit file. This report includes details about your income, debts, payment history, and any legal or bankruptcy-related information.
While the necessary credit score varies depending on the mortgage you're applying for, generally, the higher your score, the lower your interest rate will be.
Do I Have a Right to Know What’s in My Report?
Credit reporting agencies are obligated to provide you with all the details in your report, which includes medical information, and typically, they should disclose the sources of this information as well. Additionally, they must furnish you with a list of individuals or entities that have requested your report within the past year (or two years for employment-related requests).
What Type of Information Do Credit Bureaus Collect and Sell?
Credit bureaus gather and sell information in four primary categories:
- Identification and employment information
Your name, birth date, social security number, employer details, and your spouse's name, if applicable. A credit reporting agency might also provide information about your employment history, homeownership, income, and previous addresses, but only if a creditor requests this data.
- Payment History
Your accounts with various creditors, showing the amount of credit extended to you and your payment history. It may also include related events, such as the referral of overdue accounts to collection agencies.
Credit reporting agencies are required to maintain records of creditors who have requested your credit history in the past year. For employment-related inquiries, these records are retained for the past two years.
- Public Record Information
Events that are a matter of public record, such as bankruptcies, foreclosures, or tax liens, may appear in your report.
What is Credit Scoring?
Credit scoring is a system used by creditors to determine whether to extend credit to an individual. This system collects information about you and your credit experiences, including:
- Bill-payment history
- The number and type of accounts you have
- Late payments
- Collection actions
- Outstanding debt
- The age of your accounts
This information is gathered from your credit application and credit report. Using a statistical program, creditors compare your credit information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points, known as a credit score, helps predict your creditworthiness, i.e., how likely you are to repay a loan and make the payments on time.
The most widely used credit scores are FICO® scores, developed by Fair Isaac Company, Inc. These scores range from 350, indicating high risk, to 850, indicating low risk.
Because your credit report is an important part of many credit scoring systems, it is very important to ensure its accuracy before submitting a credit application. To obtain copies of your report, contact the three major credit reporting agencies below:
- Equifax: (800) 685-1111
- Experian (formerly TRW): (888) EXPERIAN (397-3742)
- TransUnion: (800) 916-8800
These agencies may charge you for your credit report. However, you are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit agencies, which can be requested through https://www.annualcreditreport.com.
This free credit report may not include your credit score.
What Can I Do to Improve My Credit Score?
If you want to improve your credit score, you should know that credit scoring models typically consider the following:
- Timely Bill Payment Your payment history plays a major role in determining your credit score. If your credit report shows that you've made late payments, had debts handed over to collection agencies, or declared bankruptcy, this can negatively impact your score. These events are significant because they indicate to lenders potential risks in lending to you based on your past financial behaviors.
- Outstanding DebtMany credit scoring models take a close look at how much debt you have in relation to your total credit limits. If you're using a large portion of your available credit—meaning the amount you owe is near your total credit limit—this can be seen as a red flag and may negatively affect your credit score. Essentially, lenders might interpret this as you being overextended financially, which could impact your ability to repay new loans.
- Credit History In credit scoring, the length of your credit history is an important factor. A shorter or limited credit history might lower your score to some extent. However, this can be balanced out by other positive aspects of your financial behavior, like consistently making payments on time and keeping your debt balances low. In other words, even if your credit history isn't very long, demonstrating responsible credit management can still positively influence your score.
- New Lines of CreditCredit scoring models often take into account your recent applications for credit, which show up as "inquiries" on your credit report. If it looks like you've been applying for a lot of new credit accounts in a short period, this could lower your score. The idea here is that applying for a lot of credit at once might signal financial stress. But it's worth noting that not every inquiry affects your score. For example, if a creditor checks your credit as part of a routine account review, or for "prescreened" credit offers, these types of inquiries don't count against you.
- Number and Type of Credit CardsHaving a variety of established credit accounts is usually seen as a positive thing, as it shows you have experience managing credit. However, owning too many credit card accounts might work against you in terms of your credit score. The reasoning here is that having a lot of credit cards could suggest a higher risk of overextending financially. Also, the types of credit accounts you hold matter. For instance, some scoring models view loans from finance companies a bit differently, and these might not be as favorable for your credit score compared to other types of credit, like bank loans or credit cards.
Keep in mind that credit scoring models don't just look at your credit report; they may also consider information from your credit application. This could include things like your job and whether you own a home. To improve your credit score, focus on a few key habits:
- Pay your bills on time
- Work on lowering your total debt
- Do not open new credit accounts
Remember, increasing your credit score significantly usually doesn't happen overnight—it's more of a steady, gradual process.
What Happens if I’m Denied or Don’t Get the Terms I Want?
If your application is rejected, or if the terms aren't what you hoped for, talk to our agents about our credit scoring system. We will be happy to discuss the factors that influenced our decision and tell you how you can improve your application in the future.
When you do get credit, evaluate whether you are receiving the best possible rate and terms. If not, find out why. Sometimes, an unfavorable rate could be due to errors in your credit report. If that's the case, you definitely want to challenge and correct those errors.
Under the Equal Credit Opportunity Act, if your credit application is rejected, the creditor must give you the specific reasons why or let you know that you have the right to find out these reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: "Your income was low" or "You haven't been employed long enough." Unacceptable reasons include: "You didn't meet our minimum standards" or "You didn't receive enough points on our credit scoring system."
If a lender tells you that you were denied credit because your credit card balances are too high or you have too many credit card accounts, you might want to consider reapplying after lowering your balances or closing some accounts. Credit scoring systems update and change over time as your information changes.
Being denied credit because of information on your credit report entitles you, under the Fair Credit Reporting Act, to the name, address, and phone number of the credit reporting agency that provided the report. You have the right to know what's in your report and can request this information for free within 60 days of a credit denial. The credit reporting agency can tell you what’s in your report, but only the creditor can explain the specific reasons for your application's denial.
What is the Fair Credit Reporting Act?
The Fair Credit Reporting Act (FCRA) is designed to help ensure that credit reporting agencies furnish correct and complete information to businesses to use when evaluating your application.
Your rights under the Fair Credit Reporting Act:
- You have the right to receive a copy of your credit report.
The copy of your report must contain all of the information in your file at the time of your request.
- You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes.
- Any company that denies your application must supply the name and address of the credit reporting agency they contacted, provided the denial was based on information given by the credit reporting agency.
- You have the right to a free copy of your credit report when your application is denied because of information supplied by the credit reporting agency. Your request must be made within 60 days of receiving your denial notice.
- If you contest the completeness or accuracy of the information in your report, you should file a dispute with the credit reporting agency and with the company that furnished the information to them. Both the credit reporting agency and the furnisher of information are legally obligated to reinvestigate your dispute.
- You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction.
Why Work With Us?
Complete your mortgage process in as little as three weeks for a faster home-buying experience.
Expertise at Every Step
Receive personalized advice from experienced mortgage experts who understand your needs and treat you like family.
Gain access to the most competitive rates in the market while lowering your long-term mortgage expenses.
Access key insights from industry leaders on the latest real estate trends. Our podcast is your go-to resource to help you make informed decisions about your purchases and investments.
Whether you're going conventional, VA, or FHA, our mortgage calculators provide monthly payment clarity, ensuring you plan ahead for a seamless homebuying experience.