What is Credit?
If you have a credit card or have borrowed money to buy something, for example a car, you were given credit. Credit means you are using someone else's money to pay for things. It also means you made a promise to repay the money you borrowed (the loan) to the person or company (the lender) that loaned you the money.
Because a loan is a legal obligation, it is important to understand how you must repay it.
An installment loan is a loan paid in a set number of payments, such as a car loan. Your payments include both principal, the amount of money you borrowed, and interest, the additional dollars you pay for the privilege of borrowing the money.
A revolving line of credit, for example a credit card, has a minimum payment based on the lender’s policies that may not even pay the interest you owe on the outstanding principal.
Good credit means that you make your loan payments on time and you repay your debts as you promised. Good credit is important because it makes it more likely that you can get a new loan in the future when you want to make a major purchase, such as a car or a home. When you have a good credit record, lenders feel more confident that you will be willing and able to pay them back.
Would you lend your own money to someone that does not repay his or her loans? It's true that you need good credit to buy a home, but you don't need perfect credit. If you don't have good credit right now, don't get discouraged. There are many programs for borrowers with poor or no credit. This type of mortgage is called a Sub-prime (for less then prime credit) or B/C (as in B/C versus A credit).
You can use the ideas in this section to start improving your credit. It may take some time, but you will be far better off if you improve your credit before you apply for a home mortgage loan. This is important because if you have a habit of not paying your bills on time, or have a lot of debt, you may not qualify for a mortgage loan at all. Or you may be given a loan, but only with a larger down payment or at a higher rate of interest due to the higher risk a lender takes that you will repay your mortgage as agreed.
Sometimes the fastest way to improve your credit is to pay the piper, get a loan, and pay it on time. Then after you have improved your credit, refinance to a lower rate.
How do I know if I have Good Credit?
Sometimes borrowers believe they have good credit and then they apply for a loan and are surprised to learn that they some credit problems. Your credit report may also have errors. The best way to find out if you have good credit is to get a copy of your credit report. If you are meeting with a Loan Officer, they will bring a copy of your credit report with them and will explain it to you. The FACTA act allows you to get one free credit report a year from each of the three credit bureaus.
What is a Credit Report?
A credit report is a record of how you have paid your credit card debt, installment loans, and other debts. A credit report shows how much debt you have, who you owe, if you have made payments on time, or if you have not paid back some loans at all.
There are three main credit reporting agencies. They do not share information between each other, nor do they grant or deny credit. They only report information as it it supplied to them by your creditors and gathered from public sources. Your creditors may report to all three or only one of the credit reporting agencies.
Credit reports do not show information about your race, religion, medical history, personal lifestyle, political preferences, criminal record or any other information unrelated to credit.
A “tri-merged” credit report will be ordered by your Loan Officer, who will explain it to you in detail. This credit report contents information from all three national credit-reporting agencies “merged” into one report.
The five types of information included in the report are:
A. Identifying Information: your name, current and previous addresses, telephone number, Social Security number, date of birth, and current and previous employers. This informationtion comes from credit applications you have filled out with your creditors.
B. Credit Scores: a number from each credit agency based on a secret computer model that grades your credit history.
C. Credit Information: specific details about your credit cards, student loans, and other loans. This information includes the date opened, credit limit or loan amount, balance, and monthly payment. The report also shows your payment history during the past several years, and the names of anyone else responsible for paying the account, such as a spouse or a co-signer. Late payments, skipped payments, accounts turned over to a collection agency, and repossessions appear here. This information comes from companies you do business with.
D. Public Record Information: bankruptcy records, foreclosures, tax liens for unpaid taxes, monetary court judgments (such as lawsuits), and, in some states, overdue child support. This information comes from federal, state, and local government public records.
E. Inquiries: the names of those who obtained a copy of your credit report and how often you have applied for credit in the past two years. When you order a credit report, you may also see the names of companies that have reviewed your report for "pre-approved" credit offers. However, the name of these inquires will not be given to creditors who request a copy of your report. Creditors only see the inquiries you initiate (by applying for a new credit card, for example).
F. OFAC Compliance: due to the Patriot Act, your information will be checked against the federal lists of potential terrorists, and drug smugglers, and money launderers.
Creditors rely on the information in your credit report on how you have handled your loans in the past, to decide how likely you are to repay the loan you are applying for. When you apply for credit or a loan, you give the creditor permission to order your credit report from a credit reporting agency.
How to Correct Errors on Your Credit Report
Your credit report should be accurate, but it is important to make sure. Your Loan Officer will explain your credit report to you to make sure there are no errors. If there are errors or outdated information on your credit report, it could hurt your chances of getting a new loan.
The credit reporting agencies received their information from your creditors and from public records. They believe this is accurate unless you inform them that it is not.
The good news is that you have the right to have the mistakes corrected and it is free.
Beware of companies claiming that they can remove derogatory credit information from you credit report. No one can remove information from you credit report other then your creditor or the reporting credit agency.
The Fair Trade Reporting Act (FCRA), enforced by the Federal Trade Commission, is designed to promote accuracy and ensure the privacy of the information used in consumer credit reports. Recent amendments to the Act expand your rights and place additional requirements on the credit reporting agencies (CRAs) and the businesses (creditors) that supply information about you to the CRAs.
Regardless what the CRAs tell you or state on their web sites, Mortgage Trust Group recommends that you contact them and the creditor with the inaccurate information in writing versus online.
The CRA must investigate the items in question within 30 days, unless they consider your dispute frivolous. They must also forward all information and data you provided about the dispute to the information provider, your creditor.
After your creditor receives notice of your dispute from the CRA, it must investigate, review all information provided by the CRA, and report their findings back to the CRA. If the disputed information is found to be inaccurate, your creditor must notify all nationwide CRAs so they can correct the error.
The CRA must give you a written result of the investigation and provide you with a free copy of your credit report if the dispute results in a change in your report. If an item was changed or removed, the CRA cannot put the item back on your credit unless your creditor verifies its accuracy and the CRA sends you a written notice that includes the name, address, and number, of the creditor.
If you send a dispute to your creditor, the must then report your dispute to the CRAs. In addition, if the item is found to be inaccurate, your creditor may not report it again.
The companies that advertise that they can have derogatory information removed from your credit report “spam” your creditors and CRAs with dispute letters. You want to make sure that your dispute is not determined to be frivolous.
Mortgage Trust Group, recommends sending letters to both the CRAs that reported an item inaccurately and your creditor reporting the information. We recommend that your letter state that you applied for a loan and the error caused you “grievous harm.” You should included any and all proof and documentation of the error, and that you send the package by registered mail.
If you have not heard back within 30 days of the CRA’s receipt of your package, you should send a second letter, re-enclosing all the items from your first letter, plus a copy of the registered mail receipt, stating that as “you have not heard back from them in 30 days to remove the item in question from your credit report.” The CRA is require to remove the item in question if it is an error or not.
If you do not get satisfaction in correcting an error on your credit report., you may file a complaint with the FTC.
Your Loan Officer will assist you with correcting errors on your credit report.
Mortgage Trust Group, Inc.
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