Decoding Your Credit Report
Find out what Lenders know about you
Leap over an initial hurdle that faces all borrowers by examining and polishing your credit report. For yourself and your spouse, go to www.AnnualCreditReport.com to order your free once-a-year report from each of the three credit reporting agencies. Get all three if you have not looked over your credit report before; after updating all, plan to get one report every four months to watch over your credit through the year. You must pay for your credit SCORE, about $15.00. Do this about once a year, from Fair Isaac or Experian. When you check your own credit, it does not ding your score; when a lender or credit card company or finance company or auto dealer checks it, it will affect (reduce) your score for the next two years.
GOAL: Credit Score of 680 up; 750 is even better; 800 up is excellent.
Once you have your credit report in hand, the following will help you interpret it.
Check for errors: PERSONAL INFORMATION: Start with the basics: Is it your correct name, address, and social security number? Your address information may be found at the end of the report as well, showing a history of the addresses you gave in the past.
NEGATIVE ITEMS: The report will show these first. Late payments, charge-offs, repossessions, and items sent to collection will be shown here. If they are more than seven years old, you can ask they be removed. If the items are incorrect, file a dispute with the credit reporting agency and/or contact the original creditor to prove the item is wrong. You may also place a statement beside the item to explain the extenuating circumstances that caused the late payment, etc.
ACCOUNTS IN GOOD STANDING: This list shows all accounts for the past 10 years, noting when the account was opened, credit limit (or highest amount ever spent), Duration (such as a 60 month car loan), Frequency (monthly/weekly, etc), Activity (should read paid and closed for a paid-off auto loan), Date reported (shows the most recent date that account reported in to the credit bureau), Balance Amount (as of the previous date; this may be different from your current balance as several months may have passed).
Other categories that may not be filled in include: Amount past due, Date of last payment, Actual payment amount, Scheduled payment amount, Date of last activity, Date major delinquency 1st reported, Charge-off amount, Deferred pay start date (if you have worked out an arrangement to defer payments, it will be shown here), Balloon pay amount, Ballon pay date, Date Closed.
Some credit agencies show Current Status, Type of Account (installment/revolving), Type of loan (auto, mortgage, etc.), Whose account (joint, individual or authorized user).
Make your credit report sparkle:
no late payments
have only 4 or 5 credit cards: 2 bank cards such as Visa, Mastercard or Amex, 1 gasoline card, and 2 store cards such as Sears
no finance company loans
no bank personal loans
no foreclosures
no unpaid debt judgments
no bankruptcy
no unpaid taxes
no repossessions
Home mortgage loan is a bonus to credit if always paid on time. Any of the above negative items can be removed when they are more than 7 years old. Mortgage lenders give heavier weight to recent negative items (past 2-4 years).
A Strategy for Credit Card Success:
Close out all store credit cards from places where you no longer live, and all cards you no longer use regularly. Keep your oldest cards, as they demonstrate your long-term credit history. (Cancelled and closed cards will still appear on your credit history for 7 years.)
Aim to pay off all cards completely.
Use one card regularly (after all are paid off) paying it off each month. Use the other cards at least 2-3 times a year, paying them off completely when the bill comes.
Keep a ratio of less than 20% of total amount owed to total lines of credit. Example: $2,000 owed on all 4 credit cards combined, with combined total credit limit of $10,600 = 19% credit-to-debt ratio (in other words, don't max out your credit cards)
A basic credit card strategy is to have access to instant credit through having a good payment reputation, but never use the money as a long-term loan.
Financial Health Strategy: Determine to pay down all credit cards and secure a savings stash to rely on instead of credit cards. Gradually put aside enough to cover car repair ($600+), appliance repair/purchase ($500+), medical emergencies ($1000+), and job loss buffer (enough to cover three months of bare necessities. Total financial health savings = $8,000 up. Don't touch this money unless a major disaster strikes (don't use for Christmas, vacations or to shop sales!)
Target date: To have your stash built up in 2-4 years, divide total desired amount by 24 to find amount to put aside each month to save in 2 years ($334 per month = $8,000 in two years) Set up an automatic withdrawal from the bank account where your paycheck is deposited to a savings account to make this happen. If you don't have to make the decision again every month, there is less chance you will fail.
You can have a terrific credit report now that you know the secret: examine and correct it, then pay down your debt and prepare your cash reserves. You'll be in a great place to get a home loan.
Calculate your mortgage or search for a home online at www.homekey.org. For a home in Arizona, call Marsha Cleaveland, Keller Williams Realty 623 337-8990.
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