Consumer Services
Credit Problems
It is probably safe to say that most of us have a few blots on our credit history. For some, the problems are relatively minor — just a few late payments. For others it can range from having credit cards revoked to a foreclosure.
All that anyone with a bad credit history can do is start developing a good one. After a year or two they will find that it makes a difference, but how big a difference? What mortgage companies look for when they see individuals who have had credit challenges in the past is whether they are done with them. Are they done with them or are they in the middle of them?
If the credit problems happened 12 or 24 months ago, they'll look at the situation differently — especially if it looks like an isolated problem. However, if it is an ongoing problem; if every year the person has a few late payments, then he or she will have better luck dealing with "hard money lenders", meaning lenders who specialize in dealing with people who have less than wonderful credit histories. Such lenders charge a higher interest rate, because the risk is greater.
If you can keep your credit history clean for between 12 and 24 months, you have a fairly good chance of getting a mortgage at the going interest rate.
How can you clean up your credit history and keep it clean? The first step is to pay off your existing debts. Also make sure you make all your monthly payments on time. Getting out of debt and repairing your credit history is not easy. It takes time, discipline, and often a major change in the way you spend money and on what you spend it.
Having a bad credit history doesn't mean that you will never be able to get a mortgage at a reasonable interest rate. It just means that you might have to work a little harder and wait a little while. In the end, however, you should be able to celebrate your mortgage and enjoy your much waited for home.
Credit Reports
Your credit report is information about your borrowing and repayment history. It is put together using facts provided by your creditors and from public records such as court documents. Credit bureaus compile the data for potential creditors, employers, and others who can show they have a legitimate business reason to ask for it. Credit bureaus do not approve or reject you as a credit risk.
Your records are most likely to be requested from one or all of the three largest credit bureaus in the U.S.:
- Equifax
- Experian (formerly TRW)
- Trans Union
Getting Your Credit Report
Under the Fair Credit Reporting Act, you are entitled to a free credit report within 60 days of being denied credit, employment, insurance, or rental housing based on information in the report.
You are also entitled to a free report once a year if you certify: you are unemployed and seeking employment; you are receiving public welfare assistance; or you believe your credit file contains inaccuracies resulting from fraud.
Otherwise, you will need to pay a fee for each report you request. Equifax, Experian, and Trans Union are the three credit reporting bureaus. Since not all creditors report in to each credit bureau, financial experts suggest you request your credit records from all three.
To order your credit report, they will most likely ask you to provide the following information:
- Full Name
- Spouse's first name
- Current address
- Phone number
- Addresses for the past two years if applicable
- Social security number
- Birth date
- Current employment information
- Signature
- Any fees
If you want to order your credit report, you can order directly from the credit bureaus below.
Equifax
Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241
800-685-1111
www.equifax.com
Experian (TRW)
National Consumer Assistance Center
P.O. Box 949
Allen, TX 75013-0949
888 Experian (888-397-3742)
www.experian.com
Trans Union
Customer Disclosure Center
P.O. Box 390
Springfield, PA 19064-0390
800-851-2674
www.transunion.com
Reading Your Credit Report
Note: If you've never read a credit report before-especially if you are disputing a derogatory one-it's a good idea to have a credit counselor or someone knowledgeable review it with you.
Although credit bureau reports may not look alike, they contain many of the same items. Usually included are your credit record and relevant facts such as your age, address, marital status and employment history. When reviewing, check the details. Be sure your name is spelled right, and the record shows the correct Social Security number and birth date. Any phone numbers, addresses and employer information should be up to date.
Your report will show who has requested information about you at your request (such as when you apply for a credit card). It should also tell you who was given information by the bureau in order to send you offers of credit or insurance.
A credit bureau report also lists your creditors (retail stores, mortgage companies, etc.). You can check for obvious problems, but beware that lenders also look for certain behaviors. For example, even if you have no outstanding balances, holding or applying for several credit cards may hurt your cause. Or your debt ratio, the percentage of your monthly income that goes toward credit payments, may be higher than acceptable. (Debt ratio typically should not exceed 20-25 percent of your income if you pay a mortgage or 8-15 percent if you don't.)
Correcting Your Credit Report
What can you do if your credit report contains incorrect or derogatory information?
The information in your report is inaccurate or unfair you will need to correct it. This can take some time and effort on your part, but remember-a negative report will haunt you for at least seven years.
First contact the creditor that filed the complaint, correct the error and ask that any credit bureaus involved be notified in writing. Be sure to document your efforts. If the credit bureau made the mistake, challenge it. By Federal law, it will have to delete the disputed information if it cannot be confirmed. Both the credit bureau and the creditor who filed the derogatory information must help you resolve the issue in a timely manner, within 30 days.
If the credit bureau finds their information to be confirmed, you may still attach a "Statement of Dispute", to argue your side of the story. This should not be confused with an explanatory note that might say something such as"I lost my job and was able to pay my bills that month." Warning: Explanatory notes can do more harm than good, and because of the seven year holding period both notes might actually stay on your record longer than the original problem transaction.
A couple of notes: Paying off a delinquent account will clarify that nothing more is owed, but the fact that it was once delinquent can stay on your record up to seven years. Similarly, closing an account doesn't remove it from your credit report.
Once corrected, the credit bureau will send a revised copy of your report to any credit grantor who requested it over the past six months. However, they may only do so if you ask them to send it.
If you can't find what you're looking for here, please or call 800-261-SOLD (7653) with any questions you might have.
